8007 Practice Exam Questions with Answers Exam II: Mathematical Foundations of Risk Measurement - 2015 Edition Certification

When calculating the implied volatility from an option price we use the bisection method and know initially that the volatility is somewhere between 1% and 100%. How many iterations do we need in order to determine the implied volatility with accuracy of 0.1%?

For the function f(x) =3x-x3 which of the following is true?

Which of the following statements is not correct?

In a multiple linear regression, the significance of R2 can be tested using which distribution?

Suppose we perform a principle component analysis of the correlation matrix of the returns of 13 yields along the yield curve. The largest eigenvalue of the correlation matrix is 9.8. What percentage of return volatility is explained by the first component? (You may use the fact that the sum of the diagonal elements of a square matrix is always equal to the sum of its eigenvalues.)

Consider an investment fund with the following annual return rates over 8 years: +6%, -6%, +12%, -12%, +3%, -3%, +9%, -9% .

What can you say about the annual geometric and arithmetic mean returns of this investment fund?

What is the probability of tossing a coin and getting exactly 2 heads out of 5 throws?

You intend to invest $100 000 for five years. Four different interest payment options are available. Choose the interest option that yields the highest return over the five year period.

An asset price S is lognormally distributed if:

Bond convexity is closely related to …

What is the simplest form of this expression: log2(165/2)

An underlying asset price is at 100, its annual volatility is 25% and the risk free interest rate is 5%. A European call option has a strike of 85 and a maturity of 40 days. Its Black-Scholes price is 15.52. The options sensitivities are: delta = 0.98; gamma = 0.006 and vega = 1.55. What is the delta-gamma-vega approximation to the new option price when the underlying asset price changes to 105 and the volatility changes to 28%?

Which statement regarding the matrix below is true?

A bond has modified duration 6 and convexity 30. Find the duration-convexity approximation to the percentage change in bond price when its yield increases by 5 basis points