## Risk Management

Business

## Quiz 2 :

Risk Measurement and Metrics

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Q30 Q30 Q30

The normal distribution or bell-shaped curve from statistics provides an example of a continuous probability distribution curve.While calculating the probability of the occurrence of an event, we find that the area under the curve in between the desired range of profitability values is 0.562.What does this mean?

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Multiple Choice

Q36 Q36 Q36

One measure of deviation or surprise is by calculating the expected squared distance of each of the various outcomes from their mean value.This is a weighted average squared distance of each possible value from the mean of all observations, where the weights are the probabilities of occurrence.Computationally, we do this by individually squaring the deviation of each possible outcome from the expected value, multiplying this result by its respective probability or likelihood of occurring, and then summing up the resulting products.Identify the measure produced.

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Multiple Choice

Q40 Q40 Q40

A problem with the variance as a measure of risk is that by squaring the individual deviations from the mean, you end up with a measure that is in squared units.To get back to the original units of measurement we commonly take the square root and obtain a risk measure known as:

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Multiple Choice

Q55 Q55 Q55

The birth of the "modern" ideas of chance occurred when a problem was posed to mathematician Blaisé Pascal by a frequent gambler.What was the problem? What was Pascal's approach to it?
The problem posed was: If two people are gambling and the game is interrupted and discontinued before either one of the two has won, what is a fair way to split the pot of money on the table? Clearly the person ahead at that time had a better chance of winning the game and should have gotten more.The player in the lead would receive the larger portion of the pot of money.However, the person losing could come from behind and win.It could happen and such a possibility should not be excluded.How should the pot be split fairly?

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Essay

Q56 Q56 Q56

Probability can have two different meanings or forms as related to statements of uncertain outcomes.Distinguish between the following sentences: "If I sail west from Europe, I have a 50 percent chance that I will fall off the edge of the earth" and "If I flip a coin, I have a 50 percent chance that it will land on heads."

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Q66 Q66 Q66

Regardless of the source of the likelihoods, we can obtain an assessment of the probabilities or relative frequencies of the future occurrence of each conceivable event.The collection of possible events together with their respective probabilities of occurrence is called a _____ distribution.

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Q74 Q74 Q74

The VaR examines the size of loss that would occur only 1 percent of the time, but it does not specify the size of the shortfall that the company would be expected to have to make up by a distress liquidation of assets should such a large loss occur.A measure called the _____ is used for this.

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