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PRMIA Exam 8007 Topic 1 Question 75 Discussion

Actual exam question for PRMIA's 8007 exam
Question #: 75
Topic #: 1
[All 8007 Questions]

A 2-year bond has a yield of 5% and an annual coupon of 5%. What is the Modified Duration of the bond?

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Suggested Answer: D

by Larae at Jun 21, 2024, 11:00 PM

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Annice
11 months ago
This is a classic binomial tree problem. I could do these in my sleep. Hey, does anyone else feel like a tree right now? No? Just me? Alright then.
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Kimi
11 months ago
Okay, let me break this down step-by-step. The up-factor is 1.1, the down-factor is 0.9091, and the risk-free rate is 1%. Yep, B is the correct answer!
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Jacqueline
9 months ago
I'm pretty confident it's B) 0.5292. The risk neutral probability for an up move should be slightly higher.
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Lera
9 months ago
Actually, I believe it's C) 0.5286. The calculations seem to point in that direction.
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Mollie
9 months ago
Are you sure about that? I think the answer is A) 0.5290
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Sherita
9 months ago
I agree with you, B) 0.5292 seems to be the correct answer. The risk neutral probability is an important concept in option pricing.
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Essie
10 months ago
Actually, I believe it's C) 0.5286. The risk neutral probability is calculated using the risk-free rate and the up and down factors.
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Melvin
10 months ago
Are you sure about that? I think the answer is A) 0.5290.
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Evelynn
11 months ago
Wait, isn't the risk-neutral probability supposed to be between 0 and 1? I'm not sure any of these answers fit that criteria.
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Rozella
10 months ago
It seems like the risk-neutral probability for an up move is 0.5290, which is the closest to 0.5.
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Melissa
10 months ago
The risk-neutral probability is calculated based on the risk-free interest rate and the up and down factors in the binomial tree model.
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Felix
10 months ago
D) 0.5288
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Richelle
10 months ago
C) 0.5286
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King
10 months ago
B) 0.5292
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Ettie
10 months ago
A) 0.5290
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Holley
11 months ago
Hmm, this question seems tricky. I think I'll go with option B, it looks the most plausible to me.
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Annamae
10 months ago
Let's go with option B then.
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Helga
10 months ago
I agree, option B looks like the most plausible answer.
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Mona
10 months ago
I'm not sure, but option B does seem like a good choice.
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Dalene
11 months ago
I think the answer is option B.
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Chandra
11 months ago
Sure, I used the formula for risk neutral probability and plugged in the values given in the question. That's how I arrived at 0.5292.
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Novella
11 months ago
Hmm, that's interesting. Can you explain your rationale?
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Chandra
11 months ago
I believe it's actually 0.5292, based on the calculations I did.
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Novella
12 months ago
I think the risk neutral probability for an up move is 0.5290.
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