PRMIA Exam II: Mathematical Foundations of Risk Measurement - 2015 Edition : 8007

  • Exam Code: 8007
  • Exam Name: Exam II: Mathematical Foundations of Risk Measurement - 2015 Edition
  • Updated: Aug 02, 2026
  • Q & A: 133 Questions and Answers

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PRMIA 8007 Exam Syllabus Topics:

SectionObjectives
Stochastic Processes and Time Series- Stochastic processes basics
  • 1. Markov processes
    • 2. Brownian motion (introductory level)
      - Time series analysis
      • 1. AR, MA, and ARMA models
        • 2. Autocorrelation and stationarity
          Risk Measurement Techniques- Volatility and correlation
          • 1. Correlation estimation techniques
            • 2. Variance-covariance methods
              - Value at Risk (VaR)
              • 1. Parametric and non-parametric VaR
                • 2. Historical simulation approach
                  Probability and Statistics Foundations- Statistical inference
                  • 1. Estimation theory
                    • 2. Confidence intervals and hypothesis testing
                      - Random variables and probability distributions
                      • 1. Discrete and continuous distributions
                        • 2. Expectation, variance, and moments
                          Simulation and Numerical Methods- Monte Carlo simulation
                          • 1. Random number generation
                            • 2. Risk distribution simulation

                              PRMIA Exam II: Mathematical Foundations of Risk Measurement - 2015 Edition Sample Questions:

                              1. Which of the following statements is true?

                              A) The constant plays an important role in the mathematical description of continuous compounding.
                              B) Discrete and continuous compounding produce the same results if the discount rate is positive.
                              C) Continuous compounding can be thought as making the compounding period infinitesimally small.
                              D) Continuous compounding is the better method because it results in higher present values compared to discrete compounding.


                              2. What is the maximum value of the function F(x, y)=x2+y2 in the domain defined by inequalities x 1, y -2, y-x 3 ?

                              A) 17
                              B) 29
                              C) 1
                              D) -25


                              3. Consider a binomial lattice where a security price S moves up by a factor u with probability p, or down by a factor d with probability 1 - p. If we set d > 1/u then which of the following will be TRUE?

                              A) There will always be a downward drift in the lattice
                              B) The lattice will not recombine
                              C) None of the above
                              D) The probability of an up move will not be constant


                              4. You are to perform a simple linear regression using the dependent variable Y and the independent variable X (Y = a + bX). Suppose that cov(X,Y)=10, var(X)= 5, and that the mean of X is 1 and the mean of Y is 2. What are the values for the regression parameters a and b?

                              A) b=2, a=0
                              B) b=0.5, a=1.5
                              C) b=0.5, a=2.5
                              D) b=2, a=4


                              5. You invest $100 000 for 3 years at a continuously compounded rate of 3%. At the end of 3 years, you redeem the investment. Taxes of 22% are applied at the time of redemption. What is your approximate after-tax profit from the investment, rounded to $10?

                              A) $7100
                              B) $7230
                              C) $7350
                              D) $9420


                              Solutions:

                              Question # 1
                              Answer: C
                              Question # 2
                              Answer: B
                              Question # 3
                              Answer: C
                              Question # 4
                              Answer: A
                              Question # 5
                              Answer: C

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