PRMIA 8007 Actual Free Exam Questions & Community Discussion

A 2-step binomial tree is used to value an American put option with strike 104, given that the underlying price is currently 100. At each step the underlying price can move up by 20% or down by 20% and the risk-neutral probability of an up move is 0.55. There are no dividends paid on the underlying and the discretely compounded risk free interest rate over each time step is 2%. What is the value of the option in this model?

Consider the following distribution data for a random variable X: What is the mean and variance of X?

In a 2-step binomial tree, at each step the underlying price can move up by a factor of u = 1.1 or down by a factor of d = 1/u. The continuously compounded risk free interest rate over each time step is 1% and there are no dividends paid on the underlying. Use the Cox, Ross, Rubinstein parameterization to find the risk neutral probability and hence find the value of a European put option with strike 102, given that the underlying price is currently 100.

For a quadratic equation, which of the following is FALSE?

Evaluate the derivative of ln(1+ x2) at the point x = 1

Kurtosis(X) is defined as the fourth centred moment of X, divided by the square of the variance of X.
Assuming X is a normally distributed variable, what is Kurtosis(X)?

Which of the following can be used to evaluate a regression model?
(i) Magnitude of R2
(ii) Magnitude of TSS (total sum of squares)
(iii) Tests for statistical significance
(iv) Sign and magnitude of each regression parameter

What is the indefinite integral of the function f(x) = ln(x), where ln(x) denotes the natural logarithmic function?

Let X be a random variable normally distributed with zero mean and let . Then the correlation between X and Y is: