MENU
The cumulative probability of default for a security for 4 years is 11.47%. The marginal probability of default for the security for year 5 is 5% during year 5. What is the cumulative probability of default for the security for 5 years?
Suggested Answer: B
Get Premium 8010 Questions
as Interactive Web-Based Practice Test or PDF
Real Exam Format
Detailed Explanations
Instant Access
Get Your Practice Test
Volatility clustering leads to levels of current volatility that can be significantly different from long run averages. When volatility is running high, institutions need to shed risk, and when it is running low, they can afford to increase returns by taking on more risk for a given amount of capital. An institution's response to changes in volatility can be either to adjust risk, or capital, or both. Accounting for volatility clustering helps institutions manage their risk and capital and therefore statements I and II are correct.
Regulatory requirements do not require volatility clustering to be taken into account (at least not yet). Therefore statement III is not correct, and neither is IV which is completely unrelated to volatility clustering.
45 comments · newest first
GU
Gussie
10 months ago
Totally agree, 16.47% makes sense!
DE
Delila
11 months ago
Wait, how does that add up? Seems off to me.
BR
Brandee
11 months ago
I think it should be 16.47% total.
AL
Alyce
11 months ago
Yeah, and the marginal for year 5 is 5%.
LA
Lashaunda
11 months ago
Cumulative default for 4 years is 11.47%, right?
TA
Tawny
12 months ago
I feel like the answer might be around 15.90%, but I can't quite remember how to derive that from the given numbers.
FE
Felix
12 months ago
I think I practiced a similar question where we had to calculate cumulative probabilities. If I recall correctly, it might involve some kind of multiplication for the non-default scenarios.
GI
Gilberto
12 months ago
I’m a bit unsure about how to combine those probabilities. Is it just adding them together, or do we need to adjust for the overlap?
CA
Carli
1 year ago
I remember that to find the cumulative probability for 5 years, we need to consider both the previous cumulative probability and the new marginal probability.
CR
Cristy
1 year ago
Wait, I'm a little confused. Isn't the cumulative probability supposed to be less than 100%? I'm not sure if just adding the two probabilities is the right approach here. Let me think this through step-by-step.
RO
Rosendo
1 year ago
This seems straightforward enough. I'll just add the 11.47% and 5% to get the 16.47% answer. Can't be too complicated, right?
ME
Melvin
1 year ago
Okay, I think I've got this. The cumulative probability for 5 years is the cumulative probability for 4 years plus the marginal probability for year 5, which is not the same as just adding them. I'll need to do some calculations to get the right answer.
WE
Wenona
1 year ago
Hmm, I'm a bit unsure about how to approach this. Do I just add the 11.47% and 5% together? Or is there some other formula I should be using?
NO
Norah
1 year ago
This looks like a straightforward probability calculation. I'll need to combine the cumulative probability for 4 years with the marginal probability for year 5 to get the final cumulative probability.
NA
Nan
1 year ago
The solution seems logical to me. Selecting the new report object and updating the layout should meet the goal of configuring the default Purchase Order report.
SH
Shannan
1 year ago
The question is asking about EDI transactions, so I'll focus on my knowledge of those to try to determine the correct answer.
LA
Lavonna
1 year ago
Pretty straightforward. A packing slip could totally be manipulated to move inventory without proper authorization.
RO
Rochell
1 year ago
Alright, time to put my financial math skills to the test. Let's see if I can crack this nut and make it to the next round.
DE
Delsie
1 year ago
Haha, this question is a real head-scratcher. I bet the exam writer is just trying to trip us up. Time to put on my thinking cap and outsmart them!
LI
Lisha
1 year ago
C) 15.90%
EU
Eun
1 year ago
I think the answer is A) 16.47%
QU
Quentin
1 year ago
A) 16.47%
LO
Lonny
1 year ago
D) None of the above
TH
Therese
1 year ago
C) 15.90%
SI
Simona
1 year ago
A) 16.47%
MI
Miesha
1 year ago
Woah, hold up. This is tricky. I'm not sure if I should just add the probabilities or do some fancy math. Guess I'll have to think it through carefully.
TA
Tanesha
1 year ago
No problem! It's always good to double check when dealing with probabilities.
FE
Fernanda
1 year ago
Oh, I see now. Adding the probabilities makes sense. Thanks for the clarification!
DE
Desmond
1 year ago
So, the answer would be 11.47% + 5.00% = 16.47%
GE
Gennie
1 year ago
I think you need to add the cumulative probability for 4 years with the marginal probability for year 5.
FE
Felicitas
1 year ago
Hmm, this seems straightforward enough. Let me think this through step-by-step. Yep, I'm pretty sure the answer is A) 16.47%.
JE
Jeannetta
1 year ago
That makes sense, the cumulative probability increases by adding the marginal probability for year 5.
CO
Cortney
1 year ago
I agree, the answer is A) 16.47%.
RU
Ruthann
1 year ago
Yes, it's definitely A) 16.47%.
TY
Ty
1 year ago
I agree, the answer is A) 16.47%.
VE
Veda
1 year ago
I'm not sure, but I think the answer is C) 15.90% because we need to subtract the marginal probability from the cumulative probability for 4 years.
AV
Avery
2 years ago
I agree with Sheridan, because we need to add the marginal probability of default for year 5 to the cumulative probability for 4 years.
YO
Yoko
2 years ago
Wait, the cumulative probability is 11.47% for 4 years, and then the marginal probability for year 5 is 5%? Okay, I think I got this. Time to crunch the numbers!
LE
Lenny
1 year ago
A) 16.47%
CR
Cristen
1 year ago
C) 15.90%
TE
Terrilyn
1 year ago
A) 16.47%
SH
Sheridan
2 years ago
I think the answer is A) 16.47%
MO
Mohammad
2 years ago
I'm not sure, but it makes sense to me. So, I'll go with A) 16.47%
LA
Lavonne
2 years ago
I agree with Charlette, because we need to add the marginal probability of default for year 5 to the cumulative probability for 4 years.
CH
Charlette
2 years ago
I think the answer is A) 16.47%