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PRMIA Exam 8010 Topic 7 Question 61 Discussion

Actual exam question for PRMIA's 8010 exam
Question #: 61
Topic #: 7
[All 8010 Questions]

Under the contingent claims approach to credit risk, risk increases when:

1. Volatility of the firm's assets increases

2. Risk free rate increases

3. Maturity of the debt increases

Show Suggested Answer Hide Answer
Suggested Answer: B

The point that this question is trying to emphasize is the independence of the risk management function. The risk function should be segregated from the risk taking functions as to maintain independence and objectivity.

Choice 'd', Choice 'c' and Choice 'a' run contrary to this requirement of independence, and are therefore not correct. The risk function should report directly to senior levels, for example directly to the audit committee, and not be a part of the risk taking functions.


by Darci at Sep 13, 2024, 02:43 AM

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Benedict
1 months ago
D) 1 and 2 makes the most sense to me. The risk-free rate and asset volatility are the crucial elements in this model. Time to brush up on my contingency planning!
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Twila
2 days ago
User 1: I think it's A) 2 and 3 because both the risk-free rate and debt maturity affect risk.
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Von
1 months ago
B) 1 and 3 seems like the obvious choice here. Volatility and maturity are the key drivers of credit risk, right? Or am I missing something?
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Julio
2 months ago
Whoa, this question is like a triple-decker sandwich of risk factors! I better not mess this one up or my employer will have my head on a platter.
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Makeda
2 months ago
I think the correct answer is C) 1, 2 and 3. Under the contingent claims approach, all three factors increase the risk of credit default.
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Helene
28 days ago
Yes, that's correct. All three factors play a role in determining credit risk under the contingent claims approach.
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Kallie
29 days ago
So, the correct answer is C) 1, 2 and 3.
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Mozell
2 months ago
I agree, the volatility of the firm's assets, risk free rate, and maturity of the debt all contribute to increased credit risk.
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Cruz
2 months ago
I think the correct answer is C) 1, 2 and 3. Under the contingent claims approach, all three factors increase the risk of credit default.
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Hayley
2 months ago
So, the answer must be B) 1 and 3 then.
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Rodrigo
2 months ago
I agree with Raylene, but I also think risk increases when maturity of the debt increases.
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Raylene
2 months ago
I think risk increases when volatility of the firm's assets increases.
upvoted 0 times
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