CRA Quantitative Risk Analysis 2

Question 1

In a Monte Carlo simulation for project risk, what does the 80th percentile of the cost distribution represent?

Accepted Answer

The cost value below which 80% of simulated outcomes fall

Answer

The average expected cost outcome

Answer

The maximum possible cost in the simulation

Answer

The cost associated with 80% probability of project failure

Question 2

Which correlation measure is most appropriate when assessing the relationship between two non-normally distributed risk variables?

Accepted Answer

Spearman rank correlation

Answer

Pearson correlation coefficient

Answer

Covariance matrix

Answer

Linear regression slope

Question 3

A risk has a 5% annual probability of occurrence and a loss of $2 million. What is the annual expected loss (AEL)?

Accepted Answer

$100,000

Answer

$40,000

Answer

$200,000

Answer

$400,000

Question 4

In quantitative risk analysis, what is the primary purpose of a tornado diagram?

Accepted Answer

To rank input variables by their sensitivity impact on the output

Answer

To model correlated risk variables simultaneously

Answer

To display the full probability distribution of outcomes

Answer

To calculate Value at Risk across multiple scenarios

Question 5

Which of the following best describes 'epistemic uncertainty' in quantitative risk analysis?

Accepted Answer

Uncertainty arising from lack of knowledge or data

Answer

Uncertainty from inherent randomness in a process

Answer

Uncertainty caused by model parameter rounding

Answer

Uncertainty from correlated risk events occurring simultaneously

Question 6

A lognormal distribution is commonly used to model financial losses because it:

Accepted Answer

Ensures values are positive and captures right-skewed loss distributions

Answer

Allows negative values, reflecting potential gains

Answer

Is symmetric around the mean, simplifying calculations

Answer

Has a fixed variance regardless of the mean

Question 7

In Extreme Value Theory (EVT), the Generalized Pareto Distribution (GPD) is used to model:

Accepted Answer

Losses that exceed a high threshold (tail events)

Answer

The central tendency of loss data

Answer

The correlation structure between risk factors

Answer

The frequency of routine operational losses