Pre-Summer Special Limited Time 70% Discount Offer - Ends in 0d 00h 00m 00s - Coupon code = getmirror

Home
PRMIA
PRM Certification
8005
Associate PRM Exam English Questions and Answers

Pass the PRMIA PRM Certification 8005 Questions and answers with ExamsMirror

Practice at least 50% of the questions to maximize your chances of passing.

Exam 8005 Premium Access

View all detail and faqs for the 8005 exam

Go to Exam

830 Students Passed

91% Average Score

95% Same Questions

Viewing page 2 out of 11 pages

Viewing questions 11-20 out of questions

Questions # 11:

A US treasury bill with 90 days to maturity and a face value of $100 is priced at $98. What is the annual bond-equivalent yield on this treasury bill?

Options:

8.16%

8.11%

8.00%

8.28%

Answer

Explanation

The bond equivalent yield for a treasury bill can be calculated as [(Future value - Present value)/Present value x 365/days to maturity]. In this case this works out to ($100-$98)/$98 * 365/90 = 8.28%

[Why do we use 365 days and not 360? And is there a different way to calculate treasury bill yields?

The answer to this question is that there are alternate ways to calculate these yields. For the exam, I would suggest that you calculate according to one method, see if you get an answer that matches, and pick that. I found the below on the NY Fed's website - a very clear example: (http://newyorkfed.org/aboutthefed/fedpoint/fed28.html)

The Discount Yield Method

The following formula is used to determine the discount yield for T-bills that have three- or six-month maturities:

Discount yield = [(FV - PP)/FV] * [360/M]

FV = face value

PP = purchase price

M = maturity of bill. For a three-month T-bill (13 weeks) use 91, and for a six-month T-bill (26 weeks) use 182

360 = the number of days used by banks to determine short-term interest rates (the investment yield method is based on a calendar year: 365 days, or 366 in leap years).

Example

What is the discount yield for a 182-day T-bill, auctioned at an average price of $9,659.30 per $10,000 face value?

Discount yield = [(FV - PP)/FV] * [360/M]

FV = $10,000 PP = $9,659.30 M = 182

Discount yield = [(10,000) - (9,659.30)] / (10,000) * [360/182]

Discount yield = [340.7 / 10,000] * [1.978022]

Discount yield = .0673912 = 6.74%

For the 13-week bill, the same formula would be used, dividing 360 by a maturity of 91 days rather than 182 days.

The Investment Yield Method

When comparing the return on investment in T-bills to other short-term investment options, the investment yield method can be used. This yield is alternatively called the bond equivalent yield, the coupon equivalent rate, the effective yield and the interest yield.

The following formula is used to calculate the investment yield for T-bills that have three- or six-month maturities:

Investment yield = [(FV - PP)/PP] * [365 or 366/M]

Example

What is the investment yield of a 182-day T-bill, auctioned at an average price of $9,659.30 per $10,000 face value?

Investment yield = [(FV - PP)/PP] * [365/M]

FV = $10,000 PP = $9,659.30 M = 182

Investment yield = [(10,000 - 9,659.30) / (9,659.30)] * [365/182]

Investment yield = [340.70] / 9,659.30] * [2.0054945]

Investment yield = .0707372 = 7.07%

For the 13-week bill, the same formula can be used, dividing 365 (or 366) by a maturity of 91 days.

Questions # 12:

Under the standardized approach to calculating operational risk capital, how many business lines are a bank's activities divided into per Basel II?

Options:

Answer

Explanation

In the Standardized Approach, banks’ activities are divided into eight business lines: corporate finance, trading & sales, retail banking, commercial banking, payment & settlement, agency services, asset management, and retail brokerage. Therefore Choice 'c' is the correct answer.

Questions # 13:

Which loss event type is the failure to timely deliver collateral classified as under the Basel II framework?

Options:

Clients, products and business practices

External fraud

Information security

Execution, Delivery & Process Management

Answer

Explanation

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.

Questions # 14:

Metallgesellschaft's retail contracts were

Options:

unhedged

hedged using exchange-traded futures with longer maturities than the retail contracts

hedged using exchange-traded futures with shorter maturities than the retail contracts

fully hedged using exchange-traded futures of the same maturities as the retail contracts

Answer

Questions # 15:

Boards of Directors, including Audit and Risk Committees must review thoroughly compensation plans of potentially "highly compensated positions" for:

I. competitive market conditions

II. ensuring compliance with their corporate risk appetite and fiduciary responsibility to shareholders

III. ensuring any discretionary bonus plans are geared towards keeping high income / revenue generators

IV. reporting all such personnel to the local regulator

Options:

II, III and IV only

I, II and IV only

All of the above

I and II only

Answer

Questions # 16:

[According to the PRMIA study guide for Exam 1, Simple Exotics and Convertible Bonds have been excluded from the syllabus. You may choose to ignore this question. It appears here solely because the Handbook continues to have these chapters.]

Which of the following is not an approach to attempt to value to a convertible security:

Options:

DCF analysis

Bootstrapping

Lower of bond value and value of converted shares

Bond value plus equity option value

Answer

Explanation

Bootstrapping is not one of the various approaches to try to value a convertible security. The rest of them are, and therefore Choice 'b' is the correct answer.

Questions # 17:

The correlation between two asset returns is 1. What is the smallest eigenvalue of their correlation matrix?