PRMIA 8010 Exam - Topic 1 Question 39 Discussion

Actual exam question for PRMIA's 8010 exam

Question #: 39
Topic #: 1

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?

A16.47%

B5.00%

C15.90%

DNone of the above

Show Suggested Answer

Suggested Answer: B

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.

by Ronny at Dec 21, 2023, 12:41 AM

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Gussie

6 months ago

Totally agree, 16.47% makes sense!

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Delila

6 months ago

Wait, how does that add up? Seems off to me.

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Brandee

6 months ago

I think it should be 16.47% total.

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Alyce

7 months ago

Yeah, and the marginal for year 5 is 5%.

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Lashaunda

7 months ago

Cumulative default for 4 years is 11.47%, right?

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Tawny

7 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.

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Felix

7 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.

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Gilberto

7 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?

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Carli

8 months 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.

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Cristy

8 months 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.

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Rosendo

8 months 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?

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Melvin

8 months 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.

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Wenona

8 months 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?

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Norah

8 months 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.

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Nan

8 months 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.

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Shannan

8 months ago

The question is asking about EDI transactions, so I'll focus on my knowledge of those to try to determine the correct answer.

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Lavonna

8 months ago

Pretty straightforward. A packing slip could totally be manipulated to move inventory without proper authorization.

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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.

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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!

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Lisha

12 months ago

C) 15.90%

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Eun

1 year ago

I think the answer is A) 16.47%

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Quentin

1 year ago

A) 16.47%

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Lonny

1 year ago

D) None of the above

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Therese

1 year ago

C) 15.90%

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Simona

1 year ago

A) 16.47%

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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.

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Tanesha

12 months ago

No problem! It's always good to double check when dealing with probabilities.

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Fernanda

1 year ago

Oh, I see now. Adding the probabilities makes sense. Thanks for the clarification!

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Desmond

1 year ago

So, the answer would be 11.47% + 5.00% = 16.47%

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Gennie

1 year ago

I think you need to add the cumulative probability for 4 years with the marginal probability for year 5.

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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%.

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Jeannetta

1 year ago

That makes sense, the cumulative probability increases by adding the marginal probability for year 5.

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Cortney

1 year ago

I agree, the answer is A) 16.47%.

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Ruthann

1 year ago

Yes, it's definitely A) 16.47%.

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Ty

1 year ago

I agree, the answer is A) 16.47%.

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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.

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Avery

1 year 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.

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Yoko

1 year 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!

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