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PRMIA Exam 8006 Topic 8 Question 95 Discussion

Actual exam question for PRMIA's 8006 exam

Question #: 95
Topic #: 8

[All 8006 Questions]

If the CHF/USD spot and 3 month (91 days) forward rates are 1.1763 and 1.1652, what is the annualized forward premium or discount?

A3.73% premium

B0.94% premium

C0.94% discount

D3.785% discount

Show Suggested Answer

Suggested Answer: D

Forward premium or discount can be easily calculated as {(Forward rate - Spot rate) / Spot rate x 365/number of days]. In this case, it can be calculated as =((1.1652 - 1.1763) / 1.1763 ) * 365/91 = 3.785%, which is a discount as it is a negative number. It can also be interpreted as a discount as the forward price is lower than the spot price.

by Adria at Aug 24, 2024, 05:44 AM

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Lashandra

6 months ago

I believe the correct answer is A) 3.73% premium because the forward premium is calculated as (F-S)/S * (365/days).

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Kent

6 months ago

I'm not sure, but I think it's C) 0.94% discount because the forward rate is lower than the spot rate.

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Kris

7 months ago

I agree with Lili, the forward rate is higher than the spot rate, indicating a premium.

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Lai

7 months ago

Ah, the age-old question of forward rates. I always get a headache just thinking about these things. Let's hope the exam has more multiple-choice questions like this one!

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Cordelia

5 months ago

Exactly, it's all about understanding the formula and applying it correctly.

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Franchesca

5 months ago

That makes sense, the annualized forward premium is calculated by (1.1652 - 1.1763) / 1.1763 * (365/91) * 100%.

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Glory

5 months ago

I think the answer is A) 3.73% premium.

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Luther

6 months ago

I know, forward rates can be tricky to wrap your head around.

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Lera

7 months ago

Aha! I think I got it. The annualized forward premium is 0.94% discount, so option C is the correct answer.

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Sommer

6 months ago

Yes, the annualized forward premium is 0.94% discount.

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Jovita

6 months ago

I agree, option C is the correct answer.

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Dell

7 months ago

Option D seems way too high, I don't think the forward discount can be that large. Let me double-check my calculations.

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Nickolas

7 months ago

I agree, option B seems more reasonable.

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Catalina

7 months ago

I think it's a 0.94% premium.

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Lili

7 months ago

I think the answer is A) 3.73% premium.

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Xenia

8 months ago

Hmm, this seems like a tricky one. I'm leaning towards option C, but I'm not 100% sure.

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Jesusa

6 months ago

I rechecked and you were right, it is option B. Thanks for pointing that out!

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Nohemi

6 months ago

Hmm, now I'm not sure. Let me double check my calculations.

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Dick

6 months ago

Are you sure? I calculated it and got option B, 0.94% premium.

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Laura

7 months ago

I think it's actually option A, 3.73% premium.

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