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PRMIA Exam 8010 Topic 1 Question 50 Discussion

Actual exam question for PRMIA's 8010 exam

Question #: 50
Topic #: 1

[All 8010 Questions]

There are two bonds in a portfolio, each with a market value of $50m. The probability of default of the two bonds over a one year horizon are 0.03 and 0.08 respectively. If the default correlation is zero, what is the one year expected loss on this portfolio?

A$11m

B$5.26m

C$5.5m

D$1.38m

Show Suggested Answer

Suggested Answer: C

For EVT, we use the block maxima or the peaks-over-threshold methods. These provide us the data points that can be fitted to a GEV distribution.

Least squares and maximum likelihood are methods that are used for curve fitting, and they have a variety of applications across risk management.

by Carin at Jun 20, 2024, 01:14 PM

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Kattie

2 months ago

This is a simple expected loss calculation. Why are you all making it sound so complicated?

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Ethan

1 days ago

D) $1.38m

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Abraham

18 days ago

C) $5.5m

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Bernardine

29 days ago

B) $5.26m

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Bobbye

1 months ago

A) $11m

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Dan

2 months ago

I bet the answer is D. It just feels right, you know? But I should probably show my work just to be safe.

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Rebecka

2 months ago

Wait, default correlation is zero? Does that mean I can just add the individual expected losses? Let me double-check that.

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Sueann

13 days ago

Therefore, the total expected loss for the portfolio would be $1.5m + $4m = $5.5m. So, the answer is C) $5.5m.

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Celia

16 days ago

And the expected loss for the second bond would be $50m * 0.08 = $4m.

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Veronica

22 days ago

So, the expected loss for the first bond would be $50m * 0.03 = $1.5m.

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Rodolfo

1 months ago

The one year expected loss on this portfolio would be $5.26m.

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Benton

1 months ago

Yes, you can just add the individual expected losses in this case.

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Pamela

2 months ago

Yes, you can just add the individual expected losses because the default correlation is zero.

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An

2 months ago

Okay, I think I got this. Gotta plug in the numbers and do the math.

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Mickie

2 months ago

But the expected loss is calculated by adding the individual probabilities of default and multiplying by the market value. So, it should be C) $5.5m.

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Laurel

2 months ago

Hmm, this one looks tricky. I need to think through the probabilities and expected losses carefully.

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Amber

2 months ago

I disagree, I believe the answer is B) $5.26m.

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Mickie

2 months ago

I think the answer is A) $11m.

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