PRMIA Exam 8010 Topic 1 Question 50 Discussion

Actual exam question for PRMIA's 8010 exam

Question #: 50
Topic #: 1

[All 8010 Questions]

There are two bonds in a portfolio, each with a market value of $50m. The probability of default of the two bonds over a one year horizon are 0.03 and 0.08 respectively. If the default correlation is zero, what is the one year expected loss on this portfolio?

A$11m

B$5.26m

C$5.5m

D$1.38m

Show Suggested Answer

Suggested Answer: C

For EVT, we use the block maxima or the peaks-over-threshold methods. These provide us the data points that can be fitted to a GEV distribution.

Least squares and maximum likelihood are methods that are used for curve fitting, and they have a variety of applications across risk management.

by Carin at Jun 20, 2024, 01:14 PM

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Rebecka

6 days ago

Wait, default correlation is zero? Does that mean I can just add the individual expected losses? Let me double-check that.

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An

7 days ago

Okay, I think I got this. Gotta plug in the numbers and do the math.

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Mickie

7 days ago

But the expected loss is calculated by adding the individual probabilities of default and multiplying by the market value. So, it should be C) $5.5m.

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Laurel

9 days ago

Hmm, this one looks tricky. I need to think through the probabilities and expected losses carefully.

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Amber

9 days ago

I disagree, I believe the answer is B) $5.26m.

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Mickie

16 days ago

I think the answer is A) $11m.

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