Question 1

Company A needs to provide a risk probability/frequency score for its RCSA program. If the

event is likely to happen once in 2 years, then the frequency score will be equal to:

Options :

A : 0.2

B : 0.5

C : 1

D : 2

Answer: C

Question 2

The exercise for an American type option prior to expiration day is virtually certain in thefollowing case:

Options :

A : In the event of a high dividend for an in-the-money call option

B : In the event of a high dividend for an in-the-money put option

C : In the event of a low dividend for an in-the-money call option

D : In the event of a low dividend for an in-the-money put option

Answer: A

Question 3

A risk analyst at EtaBank wants to estimate the risk exposure in a leveraged position in

Collateralized Debt Obligations. These particular CDOs can be used in a repurchase

transaction at a 20% haircut. If the VaR on a $100 unleveraged position is estimated to be

$30, what is the VaR for the final, fully leveraged position?

Options :

A : $20

B : $50

C : $100

D : $150

Answer: D

Question 4

Which one of the following statements regarding collateralized mortgage obligations (CMO)

is incorrect?

Options :

A :

CMOs have senior tranches which are considered short-term, low-risk instruments by

banks

B :

CMOs are asset-backed securities that have pools of collateralized debt obligations

(CDOs) as underlying collateral.

C : CMOs are generally less risky investment than CDOs.

D : CMOs are pools of mortgages that are divided according to the timing of cash flows.

Answer: B

Question 5

What is a common implicit assumption that is made when computing VaR using parametricmethods?

Options :

A : The expected returns are constant, but the standard deviation changes over time.

B : The standard deviations of returns are constant, but the mean changes over time.

C : The mean of and the standard deviations of returns are both constant.

D : The mean and standard deviation of returns change periodically in response to crises.

Answer: C