Question 1

A risk manager at a bank is measuring the sensitivity of a bond portfolio to non-parallel shifts in spot rates. The portfolio currently holds a 4-year zero coupon bond and a 7-year zero coupon bond with the following sensitivities to these respective spot rates:Spot rate AND Change in portfolio value for 1-bp increase in spot rate (AUD)4-year -189.277-year -302.45To model the non-parallel movement of the spot rate curve, the manager treats the 2-year, 5-year, and 10-year spot rates as key rates. Given this information, what is the portfolio’s key rate 01 (KR01) for a 1-bp increase in the 5-year rate?

Options :

A : AUD 184.06

B : AUD 226.99

C : AUD 307.66

D : AUD 491.72

Answer: C

Question 2

In the context of stress testing principles for banks, which of the following statements is correct regarding wrong-way risk? Wrong-way risk emerges when: there are changes in basis between the opening and closing of a futures

Options :

A : market conditions.

B : a company purchases an option on its own stock. the probability of default of counterparties increases as a result of general

C : a decline in an asset value may dry up its liquidity.

D : position.

Answer: A

Question 3

Suppose a bond with a par value of 1000 has coupon payments of 10% per annum and a yield to maturity of5%. If the bond has 4 years to maturity, what is the price of the bond?

Options :

A : 904.97

B : 841.51

C : 3628.22

D : 1177.3

Answer: D

Question 4

The predictions that are generated from an underfitted model will likely have:

Options :

A : high bias and low variance.

B : high bias and high variance.

C : low bias and low variance.

D : low bias and high variance.

Answer: A

Question 5

A risk analyst uses the bootstrap method to assess the market risk of a global equity portfolio that experienced significant volatility in the recent past. The analyst applies independent and identically distributed (IID) bootstrapping to the extracted standardized residuals of the fitted model, and these bootstrapped standardized residuals are then used to generate time paths of future asset returns. In the final step, the simulated data is used to estimate the VaR of the global equity portfolio over a 1-month horizon. Which of the following will the analyst find to be correct when applying the IID bootstrap method?

Options :

A : The VaR estimates will be reliable because the IID bootstrap fully captures interdependencies in the observed asset return data.

B : The VaR estimates will be reliable because they are based on random values generated from an assumed distribution that is not affected by external events or time.

C : The VaR estimates will not be reliable because they are derived from the most current observations of the period that is characterized by higher volatility.

D : The VaR estimates will not be reliable because the IID bootstrap allows the possibility of future losses that are larger than those that have been realized in the past.

Answer: C

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