FRM Part I (Financial Risk Manager) Exam Prep FREE Sample Exam

In CAPM, the market portfolio is best described as:

A portfolio containing only the largest listed stocks

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An equally weighted portfolio of all stocks

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A portfolio containing only domestic equities and bonds

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A portfolio containing all risky assets in proportion to their market values

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A portfolio return is normal with mean 10% and SD 5%. Given P(Z < -2.0) = 0.0228, what is the probability the return is below 0%?

0.0228

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0.4772

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0.0456

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0.1587

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Spread widening on a corporate bond, with Treasury yields unchanged, means:

Its price rises because investors value it more

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Its coupon automatically increases

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It becomes a Treasury security

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Its price falls and its yield rises relative to Treasuries, reflecting higher perceived credit or liquidity risk

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Cross hedging means:

Hedging the same asset with the identical futures contract

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Using two futures contracts on the same asset at once

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Avoiding hedging altogether

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Hedging an exposure with a futures contract on a related but different underlying asset

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Company A can borrow fixed at 10.0% or floating at benchmark + 1.0%. Company B can borrow fixed at 12.0% or floating at benchmark + 0.5%. A wants floating and B wants fixed. What is the total quality-spread gain available to share in a swap?

4.0%, because all four rates are added together

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1.5%, because the fixed-market difference is 2.0% (12.0 − 10.0) while the floating-market difference is only 0.5% (1.0 − 0.5 in spread terms), and 2.0 − 0.5 = 1.5%

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0.5%, because only the floating difference matters

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2.0%, because only the fixed difference matters

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A cleared position was valued at $2000 at yesterday’s settlement and at $1850 at today’s settlement, from the long holder’s perspective. What variation margin does the holder experience?

Pays the full ending value as variation margin

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Receives initial margin back in full each day

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Pays $150, because the position lost $150 on the day's mark to market

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Variation margin is only exchanged at contract maturity

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Put-call parity with known dividends D (present value) on a European option pair is written as:

c + K e^{-rT} + PV(D) = p + S0, equivalently using S0 – PV(D) in place of S0

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c + K = p + S0 + PV(D) with no discounting

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c = p + K e^{-rT} regardless of spot

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p + K e^{-rT} = c + S0 + PV(D)

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In a one-step binomial model, the stock can rise by factor u = 1.10 or fall by factor d = 0.90, and e^(r*dt) = 1.0513 (r = 5% for one period). What is the risk-neutral probability of an up move?

0.2435

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0.7565

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0.5000

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0.9065

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As a bond’s yield to maturity falls, holding its cash flows fixed, what happens to its price?

Its price falls to par

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Its price falls

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Its price rises

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Its price is unchanged

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A bond has modified duration 4.50 and convexity 70. Yields change by +2.00 percentage points. What is the approximate percentage price change including convexity?

7.60%

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-7.60%

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-6.20%

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-9.00%

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A bond has a Macaulay duration of 5.20 years and a yield of 6%. What is its modified duration?

5.20 years

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4.91 years

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4.51 years

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5.51 years

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Why does square-root-of-time scaling become unreliable when returns are autocorrelated or volatility clusters?

It assumes independent and identically distributed returns, so dependent returns scale differently

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Volatility clustering removes all tail risk

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Scaling always works regardless of dependence

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Autocorrelation makes multi-day VaR smaller than one-day VaR

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FRM Part I (Financial Risk Manager) Exam Prep FREE Sample Exam — Fixed Set

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