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PRMIA Exam 8010 Topic 1 Question 33 Discussion
Actual exam question for
PRMIA's
8010 exam
Question #: 33
Topic #: 1
[All 8010 Questions]
Topic #: 1
There are two bonds in a portfolio, each with a market value of $50m. The probability of default of the two bonds are 0.03 and 0.08 respectively, over a one year horizon. If the probability of the two bonds defaulting simultaneously is 1.4%, what is the default correlation between the two?
Suggested Answer:
D
The change in the price of a security that follows a Weiner process is determined by its standard deviation and expected return. To get the price itself, we need to add this change in price to the current price. Therefore the future price in a Weiner process is determined by all three of current price, expected return and standard deviation.
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