8008 Exam Dumps : PRM Certification - Exam III: Risk Management Frameworks, Operational Risk, Credit Risk, Counterparty Risk, Market Risk, ALM, FTP - 2015 Edition

Explantion:

Changing leverage does not affect the Sharpe ratio or the Information ratio. However, leverage magnifies both risk and return. Therefore Choice 'b' is the correct answer.Recall that Sharpe ratio is the ratio of the excess returns (over the risk free rate) of an investment to its standard deviation, and the information ratio is the ratio of the 'alpha' returns to the standard deviation of such returns.

Choice 'b' is the correct answer. All other answers are incorrect.

Refer to the detailed loss event type classification under Basel II (see Annex 9 of the accord). You should know the exact names of all loss event types, and examples of each.

A default hazard rate is the rate of default in a continuous time setting. This question is asking for probability of survival at the end of 5 years. The formula to calculate the probability of survival at the end of t years where the default hazard rate is λ is e^(-λ *t) (or in Excel, =exp(-λ*t). Therefore the correct answer is Choice 'd'.

(It may be tempting to infer that if the probability of survival at the end of 1 year is 90% (1 - 10%), then the probability of survival in 5 years would be 90%^5. However this reasoning is not correct for the reason that the given rate is not the discrete rate of default, but the hazard rate which is nothing but the continuously compounded rate of default.)