Deal of The Day! Hurry Up, Grab the Special Discount - Save 25% - Ends In 00:00:00 Coupon code: SAVE25
Welcome to Pass4Success

- Free Preparation Discussions
Mail Us support@pass4success.com
Location
Mob_nav_barsMENU

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?

Show Suggested Answer Hide 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, 02:14 PM

Limited Time Offer

25%

Off

Get Premium 8010 Questions as Interactive Web-Based Practice Test or PDF

Contribute your Thoughts:

Submit Cancel
Shala
2 days ago
I think it's closer to $5.26m.
upvoted 0 times
...
Elza
8 days ago
The expected loss is calculated using the formula for expected loss = probability of default × exposure.
upvoted 0 times
...
Marisha
14 days ago
I’m leaning towards option B, but I’m not completely confident. I should probably double-check my calculations for each bond's expected loss.
upvoted 0 times
...
Hubert
19 days ago
I feel like I might have seen a question like this where we had to consider the correlation, but since it's zero here, it should simplify things a bit.
upvoted 0 times
...
Lino
24 days ago
I think the expected loss is the sum of the individual expected losses from each bond, but I can't recall the exact formula we used in class.
upvoted 0 times
...
Reiko
1 month ago
I remember calculating expected loss in a similar question, but I'm not sure if I should just multiply the probabilities by the market values directly.
upvoted 0 times
...
Carmela
1 month ago
This looks straightforward enough. I'll start by calculating the expected loss for each bond, then add them together. Shouldn't be too tricky.
upvoted 0 times
...
Paz
1 month ago
I think I've got this. If the default correlation is zero, then the expected loss is just the sum of the expected losses on each individual bond, right? So we can calculate that and add them up.
upvoted 0 times
...
Eliseo
1 month ago
Hmm, I'm a bit confused. How do we calculate the expected loss when the default correlation is zero? I'll need to review the formula for that.
upvoted 0 times
...
Melissa
1 month ago
Okay, let's think this through step-by-step. We have two bonds with different default probabilities, and we need to find the expected loss on the portfolio.
upvoted 0 times
...
Pete
1 month ago
I'm a bit confused by the wording of this question. I'll need to review my notes on provider integration to make sure I'm interpreting the options correctly.
upvoted 0 times
...
Tamekia
1 month ago
Ah, I've seen questions like this before. Probability of failure is usually expressed in terms of frequency or likelihood, not just as abstract details. I'm pretty confident B is the right answer here.
upvoted 0 times
...
Edda
1 month ago
This question seems straightforward, I think the answer is C - small and infrequent losses.
upvoted 0 times
...
Kattie
7 months ago
This is a simple expected loss calculation. Why are you all making it sound so complicated?
upvoted 0 times
Ethan
5 months ago
D) $1.38m
upvoted 0 times
...
Abraham
6 months ago
C) $5.5m
upvoted 0 times
...
Bernardine
6 months ago
B) $5.26m
upvoted 0 times
...
Bobbye
6 months ago
A) $11m
upvoted 0 times
...
...
Dan
7 months ago
I bet the answer is D. It just feels right, you know? But I should probably show my work just to be safe.
upvoted 0 times
...
Rebecka
7 months ago
Wait, default correlation is zero? Does that mean I can just add the individual expected losses? Let me double-check that.
upvoted 0 times
Sueann
5 months ago
Therefore, the total expected loss for the portfolio would be $1.5m + $4m = $5.5m. So, the answer is C) $5.5m.
upvoted 0 times
...
Celia
5 months ago
And the expected loss for the second bond would be $50m * 0.08 = $4m.
upvoted 0 times
...
Veronica
6 months ago
So, the expected loss for the first bond would be $50m * 0.03 = $1.5m.
upvoted 0 times
...
Rodolfo
6 months ago
The one year expected loss on this portfolio would be $5.26m.
upvoted 0 times
...
Benton
6 months ago
Yes, you can just add the individual expected losses in this case.
upvoted 0 times
...
Pamela
7 months ago
Yes, you can just add the individual expected losses because the default correlation is zero.
upvoted 0 times
...
...
An
7 months ago
Okay, I think I got this. Gotta plug in the numbers and do the math.
upvoted 0 times
...
Mickie
7 months 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.
upvoted 0 times
...
Laurel
7 months ago
Hmm, this one looks tricky. I need to think through the probabilities and expected losses carefully.
upvoted 0 times
...
Amber
7 months ago
I disagree, I believe the answer is B) $5.26m.
upvoted 0 times
...
Mickie
7 months ago
I think the answer is A) $11m.
upvoted 0 times
...

Save Cancel