QUESTION: 49 Exam Topic: 1, Volume A 100 Questions

Alpha Bank determined that Delta Industrial Machinery Corporation has 2% change of default on a one-year no-payment of USD $1 million, including interest and principal repayment. The bank charges 3% interest rate spread to firms in the machinery industry, and the risk-free interest rate is 6%. Alpha Bank receives both interest and principal payments once at the end the year. Delta can only default at the end of the year. If Delta defaults, the bank expects to lose 50% of its promised payment. Six months after Alpha Bank provides USD $1 million loan to the Delta Industrial Machinery Corporation, a new competitor enters the machinery industry, causing Delta to adjust its prices and mark down the value of its inventory. Hence, the probability of default increases from 2% to 10% and the loss given default increases from 50% to 75%. If Alpha Bank can reprice the loan, what should the new rate be?

10%
13%
16.5%
20.5%

Answer(s): D

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QUESTION: 50 Exam Topic: 1, Volume A 100 Questions

Which of the following factors can cause obligors to default at the same time?
I) Obligors may be harmed by exposures to similar risk factors simultaneously.
II) Obligors may exhibit herd behavior.
III) Obligors may be subject to the sampling bias.
IV) Obligors may exhibit speculative bias.

I
II, III
I, II
III, IV

Answer(s): C

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QUESTION: 51 Exam Topic: 1, Volume A 100 Questions

After entering the securitization business, Delta Bank increases its cash efficiency by selling off the lower risk portions of the portfolio credit risk. This process ___ risk on the residual pieces of the credit portfolio, and as a result it ___ return on equity for the bank.

Decreases; increases;
Increases; increases;
Increases; decreases;
Decreases; increases;

Answer(s): B

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QUESTION: 52 Exam Topic: 1, Volume A 100 Questions

To estimate a partial change in option price, a risk manager will use the following formula:

Partial change in option price = Delta x Change in underlying price
Partial change in option price = Delta x (1+ Change in underlying price)
Partial change in option price = Delta x Gamma x Change in underlying price
Partial change in option price = Delta x Gamma x (1+ Change in underlying price)

Answer(s): A

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Free 2016-FRR Exam Braindumps (page: 13)

QUESTION: 49 Exam Topic: 1, Volume A 100 Questions

QUESTION: 50 Exam Topic: 1, Volume A 100 Questions

QUESTION: 51 Exam Topic: 1, Volume A 100 Questions

QUESTION: 52 Exam Topic: 1, Volume A 100 Questions