We use the Moodys KMV model for the measurement of the credit risk of two firms 1 and 2 for which the value of assets and liabilities is the same (hence A1 = A2 and L1=L2). Their only difference is that the asset price volatility of firm 1 (1) is higher than the asset price volatility of firm 2 (2). Then, according to the Moodys KMV model:

a.The estimated probability of default of firm 1 will be higher than the probability of default of firm 2

b.The estimated probability of default for the 2 firms will be the same.

Assume that the current stock price of AAA firm is trading at $49. Moreover, assume that firm AAA pays no dividends. Moreover, the annual risk-free interest rate is 7% with continuous compounding. What must be the price of the 6-month maturity futures contract written on AA stock in order to avoid arbitrage in the market?

a.$50.49

b.$49.51

c.$48.44

d.$50

c.The estimated probability of default of firm 1 will be lower than the probability of default of firm 2.

The share of BBB firm is trading at $56 while the respective futures contract (3-month time to maturity) written on BBB share is trading at $60. Moreover, we know that the firm BBB pays no dividends. If we assume that the annual risk-free interest rate is 4% with continuous compounding, then, is there an arbitrage opportunity?

a.Yes, with the respective arbitrage profit being $2.5.

b.Yes, with the respective arbitrage profit being $4.5.

c.Yes, with the respective arbitrage profit being $3.44

d.No, there is no arbitrage opportunity in the market

Assume a portfolio with an annual expected return of zero percent and an annual standard deviation of 2.5%. The current value of the portfolio is 30000.

The 1-day VaR at 95% confidence level is (reported as appositive value):

a.50.53

b.52.55

c.64.77

d.69.40

A portfolio has annual expected return of 2% and annual standard deviation of 2.5%. The current value of the portfolio is 30000 million.

The 1-day VaR at 99% confidence level is (reported as appositive value):

a.89.82

b. 93.23

c.87.64

d.92.21

Assume a portfolio with a daily expected return of 3% percent and a daily standard deviation of 2%. The current value of the portfolio is 50000.

The 10-day VaR at 95% confidence level is (reported as a positive value):

a.132.45

b.474.34

c.180.56

d.122.67