A System Is Composed of Four Parts, J, K, L

question 55

Multiple Choice

A system is composed of four parts, J, K, L, and M. All four must function for the system to function. The four component reliabilities are .99, .98, .992, and .998. The designers are considering putting a .80 reliable backup at K. This backup will change the system reliability from __________ to __________.

• A) 0.9762 to 0.9605
• B) 0.9605 to 0.9762
• C) 0.9605 to some smaller value
• D) cannot be determined
• E) none of the above

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Definitions:

Spot Rate

The current market price at which a particular asset can be bought or sold for immediate delivery and payment.

Covered Interest Arbitrage

A strategy in which an investor uses a forward contract to hedge against exchange rate risk when investing in foreign interest-bearing instruments.

Nominal Risk-Free Rate

The rate of return on the safest investments, such as government bonds, without adjusting for inflation.

Forward Rate

The future interest rate agreed upon in a forward contract, which is a derivative financial instrument.