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Prepare for the PRMIA Exam I: Finance Theory, Financial Instruments, Financial Markets – 2015 Edition exam with our extensive collection of questions and answers. These practice Q&A are updated according to the latest syllabus, providing you with the tools needed to review and test your knowledge.
QA4Exam focus on the latest syllabus and exam objectives, our practice Q&A are designed to help you identify key topics and solidify your understanding. By focusing on the core curriculum, These Questions & Answers helps you cover all the essential topics, ensuring you're well-prepared for every section of the exam. Each question comes with a detailed explanation, offering valuable insights and helping you to learn from your mistakes. Whether you're looking to assess your progress or dive deeper into complex topics, our updated Q&A will provide the support you need to confidently approach the PRMIA 8006 exam and achieve success.
The questions for 8006 were last updated on Jul 22, 2026.
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The yield to maturity for a zero coupon bond is equivalent to:
Since the zero coupon bond has no interim interest payments, its only cash flow is the final payment upon maturity. This would be identical to the spot rate from now till t years, where t is the maturity of the bond.
Forward rates are marginal rates that apply to individual years in a multi-period context. Short rates refer to short term interest rates in money market futures contracts. A zero coupon bond has no coupon.
The spot exchange rate between USD and AUD is 0.70. The risk free interest rates in the US and Australia are 2% and 3.5% respectively. What is the forward exchange rate between the two currencies one year hence?
Forward currency rates can be calculated as Spot rate x (1 + rate in domestic currency)/(1 + rate in foreign currency), where the spot rate is the 'direct' rate. Direct rates are rates that are expressed as the number of domestic currency units that it takes to buy 1 unit of the foreign currency. In this case, considering the US the domestic currency, then the forward rate is given by 0.7 * 1.02/1.035 = 0.6899. Therefore Choice 'b' is the correct answer.
Which of the following cause convexity to increase:
1. Increase in yields
II. Increase in maturity
III. Increase in coupon rate
IV. Increase in duration
An easy way to analyze the impact on convexity is to think about the impact on duration. If the change causes duration to increase, it would cause the convexity to increase too, and if it causes the duration to decrease, it would reduce convexity as well. An increase in yields reduces duration, and therefore reduces convexity.
An increase in maturity increases duration, and therefore increases convexity.
An increase in the coupon rate reduces duration, and therefore reduces convexity.
An increase in duration increases convexity.
Therefore statements II and IV represent situations where convexity increases.
[According to the PRMIA study guide for Exam 1, Simple Exotics and Convertible Bonds have been excluded from the syllabus. You may choose to ignore this question. It appears here solely because the Handbook continues to have these chapters.]
Which of the following statements is true:
1. American options can only be exercised at expiry
II. European options can be exercised at any time up to expiry
III. Bermudan options can be exercised at any time up to expiry except at certain times
IV. A European option can never be worth more than an American option
Remember that:
- American options can be exercised at any time up to expiry
- European options can only be exercised at expiry
- Bermudan options can be exercised prior to expiry but only at certain dates or during certain specified periods, and not otherwise
- Since an American option can be exercised at any time prior to expiry while a European option can only be exercised at expiry, an American option will always be worth more than a European option
Therefore the first three statements are incorrect and Choice 'd' is the correct answer.
[According to the PRMIA study guide for Exam 1, Simple Exotics and Convertible Bonds have been excluded from the syllabus. You may choose to ignore this question. It appears here solely because the Handbook continues to have these chapters.]
Which of the following best describes a shout option
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