PRMIA Exam 8007 Topic 1 Question 5 Discussion

Actual exam question for PRMIA's Mathematical Foundations of Risk Measurement ? 2015 Edition exam

Question #: 5
Topic #: 1

[All Mathematical Foundations of Risk Measurement ? 2015 Edition Questions]

Consider a binomial lattice where a security price S moves up by a factor u with probability p, or down by a factor d with probability 1 - p. If we set d > 1/u then which of the following will be TRUE?

AThe lattice will not recombine

BThe probability of an up move will not be constant

CThere will always be a downward drift in the lattice

DNone of the above

Show Suggested Answer

Suggested Answer: D

by Johnetta at May 05, 2022, 09:24 AM

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