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NEW QUESTION: 1
You bought a stock for Rs. 20 and sold it for Rs. 59.72 after six years. What was the annual rate of return?
A. 21%
B. 16%
C. 18%
D. 20%
Answer: D
NEW QUESTION: 2
A company reported pretax financial statement income of $420,000 for Year 1. Taxable income for Year 1 was $300,000 due to a temporary timing difference in depreciation expenses. The income tax rate is 30 percent. In its Year 1 balance sheet, the company should record a deferred tax:
A. asset of $120,000
B. liability of $36,000
C. liability of $120,000
D. asset of $36,000
Answer: B
NEW QUESTION: 3
If E denotes the expected value of a loan portfolio at the end on one year and U the value of the portfolio in the worst case scenario at the 99% confidence level, which of the following expressions correctly describes economic capital required in respect of credit risk?
A. E
B. E - U
C. U/E
D. U
Answer: B
Explanation:
Explanation
Economic capital in respect of credit risk is intended to absorb unexpected losses. Unexpected losses are the losses above and beyond expected losses and up to the level of confidence that economic capital is being calculated for. The capital required to cover unexpected losses in this case is E - U, and therefore Choice 'a' is the correct answer.
This question does raise an important point - are expected losses a part of economic capital, or are they not?
Different text books say different things, and sometimes they say both the things. I have tried to take an approach that uses what I read in the PRMIA handbook.
This
writeup - http://www.riskprep.com/all-tutorials/37-exam-3/111-credit-var-an-intuitive-understanding - may help clarify things further.