Financial Risk Manager Part 1

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Explanation:

B is correct. The event space consists of all combinations of outcomes to which probabilities can be assigned. In this scenario, $\{M\}$ , $\{U\}$ , and $\{D\}$ are the possible outcomes of the experiment. The event space can therefore be described as containing the following events:

M occurs, U and D do not occur
U occurs, M and D do not occur
D occurs, M and U do not occur
M and U occur, D does not occur
M and D occur, U does not occur
U and D occur, M does not occur
M, U and D occur
Neither M, U, nor D occur (empty set)

This would give an event space consisting of 8 events: $\{M, U, D, \{M,U\}, \{M,D\}, \{U,D\}, \{M,U,D\}, \text{Empty Set}\}$ .

Note that a definite probability of 0 can be assigned to the "impossible" events, which are events 4, 5, 6, 7, and 8.

A is incorrect. As explained above, the event space consists of 8 events.

C is incorrect. Because the event space has a finite number of outcomes, it is called a discrete probability space.

D is incorrect. The sample space consists of the possible outcomes of the experiment $\{M, U, D\}$ , whereas the event space consists of all combinations of these outcomes (including the empty set). They are not identical.

Explanation:

M occurs, U and D do not occur
U occurs, M and D do not occur
D occurs, M and U do not occur
M and U occur, D does not occur
M and D occur, U does not occur
U and D occur, M does not occur
M, U and D occur
Neither M, U, nor D occur (empty set)

This would give an event space consisting of 8 events: $\{M, U, D, \{M,U\}, \{M,D\}, \{U,D\}, \{M,U,D\}, \text{Empty Set}\}$ .

Note that a definite probability of 0 can be assigned to the "impossible" events, which are events 4, 5, 6, 7, and 8.

A is incorrect. As explained above, the event space consists of 8 events.

C is incorrect. Because the event space has a finite number of outcomes, it is called a discrete probability space.

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Q-87. A research analyst at a boutique investment firm is assessing the impact of an increase in short-term interest rates on the credit rating of bank MSC. The analyst identifies all possible outcomes for the scenario and notes that the rating of bank MSC can either be maintained at the same level (M), be upgraded (U), or be downgraded (D). Which of the following correctly describes the event space?

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Last updated: July 10, 2026 at 05:44

The event space consists of four events.

The event space can be represented by the following set: $\{M, U, D, \{M,U\}, \{M,D\}, \{U,D\}, \{M,U,D\}, \emptyset\}$ , where $\emptyset$ is the empty set.

The event space in this scenario is a continuous probability space.

The event space is identical to the sample space of the scenario.