Question 1

A senior analyst at a financial institution is giving a presentation to a group of junior analysts on the features of the power law and its uses. The senior analyst notes that the power law is particularly important in understanding the tails of distributions. Which of the following is correct regarding the power law?

Options :

A : The power law specifies the probability of observing a value greater than a given value.

B : Power law tails are only observed in normal distributions.

C : The power law models the slow decline in the probability of observing large values in thin-tailed distributions.

D : Power law tails are not present in the Student’s t distribution.

Answer: A

Question 2

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 3

Portfolio A has total assets of $14 million and an expected return of 12.50 percent. Historical VAR of the portfolio at 5 percent probability level is $2,400,000. What is the portfolio's standard deviation?

Options :

A : 14.65%.

B : 15.75%.

C : 12.50%.

D : 17.97%.

Answer: D

Question 4

A put option on DCY stock matures six months from today and sells for $0.49. A call option on DCY stock with the same strike price sells for $4.52. Both the put and the call are European options. DCY stock is priced at $55 and the risk-free rate of interest is 4 percent.The strike price of the put and call options is closest to:

Options :

A : $53.

B : $52.

C : $50.

D : $51.

Answer: B

Question 5

One of the basic requirements of a risk control process that a risk and control selfassessment program (RCSA) fails in is the:

Options :

A : expert opinion of managers.

B : ongoing assessment of the e ectiveness of risk management activities.

C : independent veri cation of risk identi cation and measurement.

D : identi cation of expected losses.

Answer: C

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