A very risky two-year bond with a face value of $100.00 pays a semi-annual coupon of 18.0% and has a yield (yield to maturity) of 15.0% with continuous compounding. returns and 250 trading days per year. Exactly one year ago, Sally purchased a $100.00 face value bond that pays a semi-annual coupon with a coupon rate of 9.0% per annum. If we dubiously assume the predictions are independent, the binomial distribution fits a series of daily predictions over, say, a week or a month. From Toughgreens perspective, if the stock price increases by +$3.00 to $93.00, which is nearest to the impact on the positions value? A fund of funds divides its money equally between four hedge funds who earn 3.0%, +1.0%, +11.0%, and +21.0% before fees in a particular year. For each activity, firms can compare the revenue and profit they are making from an activity to the amount of economic capital required to support that activity. Each of the following statements is true about RAROC EXCEPT which is inaccurate? The total points from the three indices are divided by two to produce the weights for inclusion in the composite country risk score.[1]. On the one hand, the bond is better than junk. The forward LIBOR rate for the period between 12 and 18 months is 3.60% with semiannual compounding. Please note that although heating oil futures contracts will be used for this cross-hedge, Viaflex will NOT be tailing the hedge; i.e., the hedge will be based on the intended quantity of gallons purchased. This means that there are at least 6 new practice questions posted every week. Wholesale Supplier of CFA & FRM BOOKS - FRM Garp Part 1 2021 Books, CFA Level 1 Books, Manhattan Gmat Books and Cfa Level 1 Schweser 2022 offered by Rajal Enterprises, Pune, Maharashtra. A discrete random variable is characterized by the probability mass function (pmf) as given by f(x) = x*a, and its domain is the set of integers {6, 7, 8., 9, and 10}. Below are a summary balance sheet and income statement for Deposits and Loans Corporation (DLC): Each of the following statements is true EXCEPT which is false? What is the positions unexpected loss (UL)? Its International Country Risk Guide (ICRG) rating comprises 22 variables in three subcategories of risk: political, financial, and economic. This means that there are at least 6 new practice questions posted every week. All the practice question taking looked to pay off. Its price is therefore $104.032 as shown below. Let V be a mixture distribution where X has a component weight of 80% and Y has a component weight of 20%. How many malicious bot-views did the web page experience on this day? The stocks volatility is 36.0% per annum. Thanks! Each bond has a face value of $1,000 and default probability of 80 basis points (0.80%). Every study package that we offer includes access to our practice questions. https://www.bionicturtle.com/forum/forums/todays-daily-questions.53/, https://www.bionicturtle.com/features-pricing-2/. Free resource. For a futures contract on the same commodity, the theoretical futures price assumes the cost of carry (COC) model where this commodity has no storage, income or convenience such that theoretically F(0) = S(0)*exp(r*T) under continuous compounding, or under an assumption of annual compound frequency, F(0)=S(0)*(1+r)^T. He calculates the future principal repayment, but his calculation assumes the rate is an equivalent annual interest rate; aka, effective annual rate. In a single-factor economy, each of the following portfolios (A, B, and C) is well-diversified: You discover there is NOT an arbitrage strategy among these three portfolios. The spot price of commodity, S(0), is currently $30.00. GARP explains that perhaps the biggest argument for ERM is that an enterprise-level perspective is the best way to prioritize risks and optimize risk management. Each of the following is one of the four key reasons that enterprise risk might demand the practice of (or, the art and science of) enterprise risk management, ERM, EXCEPT which is NOT one of the four key reasons? To measure the risk of mixed portfolios not terms of other securities but instead to model direct changes to the shape of the term structure, IV. Below is an extract from a mortality table (ages 30 to 34 for males and females): Suppose a woman aged 30 years old buys a $1.0 million whole life insurance policy and she pays an annual premium of $6,000. The Bionic Turtle FRM forum was created to provide our website visitors with a place where they can quickly find information about the FRM concepts without having to search through pages of study materials or different websites. The CDO is typically responsible for standardizing a firms approach to data management.[1] In addition, which of the following statements is also TRUE about the Basel Committee on Banking Supervisions standard number 239 (aka, BCBS 239)? What is this distributions kurtosis? Consider the following discrete probability distribution of asset returns: As shown, this assets expected return is +2.55%. ----- Dear BT community members! This field is for validation purposes and should be left unchanged. Today's daily practice question discusses the electronification of fixed income markets from Topic 9 of the FRM curriculum. Couldn't have done it otherwise. The risk-free rate is 5.0%. document.getElementById( "ak_js_1" ).setAttribute( "value", ( new Date() ).getTime() ); Part 1 Full Length Interactive Mock Exam 1, Part 1 Full Length Interactive Mock Exam 2, Introduction to Foundations of Risk Management, Instructional Video: Intro to Foundations of Risk, Chapter 1: The Building Blocks of Risk Management, Study Notes: The Building Blocks of Risk Management, Practice Question Set: The Building Blocks of Risk Management, Instructional Video: The Building Blocks of Risk Management. Which is nearest to the probability that the promoters claim is correct, and the true price volatility of the cryptocurrency is less than or equal to 25.0%? Quotecan Corporation has issued a bond with the following features, characteristics and/or qualities: Quotecans interest coverage ratio (i.e., earnings before interest and taxes, EBIT, divided by interest expense) is within reasonable limits such that, at least in the near term, investors have adequate protection and should expect their interest and principal payments on the bond. bionic-turtle-frm 2/3 Downloaded from titleix.ptsem.edu on October 31, 2022 by guest . Top 3 Benefits of Using Bionic Turtle for FRM Exam Prep 1. The table below itemizes an investors long position gold futures contracts. This pension also increases with inflation. Which is more likely (the mixture or the convolution) to realize a negative outcome; that is, is Pr(V<0) > Pr(W<0), or on the other hand, is Pr(W<0) > Pr(V<0)? The probability graph below illustrates event A (the yellow rectangle) and event B (the blue rectangle). If that reading is not new, we add the new questions to a set with the older questions to give our customers a large question bank to study from. In this way, the 99.0% credit value at risk (CVaR) is -$4.00. His boss Sally observes, This is nice work Peter, but the drawback to this approach is that youve assumed underlying returns are normally distributed. Among the following reasons, which is the BEST reason to prefer the EWMA over the GARCH(1,1) model? A credit portfolio contains an adjusted exposure of $30.0 million with a default probability of 4.0%. We can price an exchange option with a simple variation on the Black-Scholes-Merton called the Margrabe variation. Kaplan Schweser FRM Part 1 2022 Notes Consider a 9-year bond with a semi-annual 10.0% coupon that has a current price of $119.780 and a yield of 7.000%. takes a long position in 100 out-of-the-money (OTM) put option contracts when the non-dividend-paying stock price is $88.00 and its volatility is 28.0%; each contract is for 100 options. The fund of funds charges 1% plus 10% and the hedge funds charge 1% plus 20% (due to competitive pressures this is reduced from 2% plus 20%). On May 28, 2019, Robin the Portfolio Manager considers the purchase of $100.0 million face amount of the U.S. Treasury 2 3/8s (2.375%) due November 15, 2028, at a cost of $90,250,000. With respect to any of the individual bonds, consider the following definitions: The estimation of the portfolio CVaR illustrates VaRs lack of subadditivity. If that reading is not new, we add the new questions to a set with the older questions to give our customers a large question bank to study from. This was easy to compute as the bond has a duration of 30.0 years and 30.0 * 0.00350 = 10.50%. Further, our model assumes the shape of the loss distribution (aka, the credit risk of each exposure) is identical for each exposure, although their means vary as follows: The pairwise default correlation is 0.40 among each exposure pair, such that the portfolios unexpected loss is $1,920,250. BT is always the recommendation I give to people aiming at the FRM designation! 20% OFF Get Code bionicturtle.com. Because he does not have time to compute the binomial, he will use a normal deviate of 2.33 to approximate a 99.0% value at risk (VaR) that employs + *2.33 to estimate the worst expected number of defaults with 99.0% confidence. Here are direct links: Hi Ank, no, 25/20 like the GARP practice exams, thanks. It is currently March and a company plans to purchase copper in December. Which of the following is TRUE? The difficulty level is a notch, or two notches, easier than bionicturtle.com's typical AIM-by-AIM question such that the intended difficulty level is nearer to an actual exam question. Please note that we could infer the price by translating the continuous rate into its semi-annual equivalent which is given by 2*[exp(0.150/2)-1] = 15.577% and then using the calculator: N = 4, I/Y = 15.577/2 = 7.7885%, PMT = 9, FV = 100 and CPT PV > $104.032. The company anticipates the spot/futures price will be $3.00 in December. The price of a six-month, USD 25.00 strike, European put option on a stock is USD 3.00.. "/> Each of the following statements relates to this coupon effect and is necessarily true EXCEPT which statement is false? Below is a spreadsheet that lists all of the practice questions that we have available. All backed by the largest, most active financial risk forum. The portfolio has a correlation of 0.50 with the market index which itself has a volatility of 20.0%. The plot below illustrates an actual portfolio possibilities curve (PPC, dashed line). Sally owns a non-dividend-paying stock that is currently trading at $60.00. When we have a complete set of questions for that reading, the questions are published as a question set in the study planner. According to GARP, each of the following was a causal factor in the 2007-2009 global financial crisis (GFC) EXCEPT which is not a causal factor? Stay in the know with all things Bionic Turtle. Study Notes: Pricing Financial Forwards and Futures. and where structured in such a manner that the breadth and depth where optimal for exam preparation - clearly the exam would have been a catastrophe without BT! Finish the Bionic Turtle trial period and then purchase the Bionic Turtle Advanced Package. The promoter of a new cryptocurrency claims that its monthly price volatility is 25.0%, or more specifically, is not greater than 25.0%. Certain members of the finance staff function, however, disagree; the hypothesis of these Excel sympathizers is that the firms current spreadsheets contain no more than one bug per sheet. Which is nearest to the simple (i.e., historical unweighted), unbiased per annum volatility estimate? I tasked this to our wrike, if you don't have an answer by Monday, we'll check with our contact so we can confirm next week, thanks. The barbell would be constructed to have the same COST and DURATION as the bullet investment. For which of the four objectives is key-rate exposures best suited? Suppose that there are two independent economic factors, F1 and F2 . Their corporate treasury department decides to base the hedge on the last 15 months of price changes. Further, each of the following statements, ceteris paribus, is true EXCEPT which is false? (This is called enterprise risk management ). Here is his summary output: Which is nearest to the correlation coefficient between portfolio returns, R(i), and the benchmark returns, R(b)? For Portfolios A and B, we also know the factor betas: (A,1) = 0.40, (A,2) = 1.20, (B,1) = 0.80, (A,1) = 1.50. August 3, 2022/in FRM /by Rupert Jones RATING: Bionic Turtle was one of the first FRM preparation providers to instruct with videos and e-learning tools. Which is nearest to this variables skew; aka, standardized third central moment? As a hedge, she buys an out-of-the-money three-month European put option on the stock with a fixed strike price of $57.00, which is a 5.0% discount to the current stock price. The interactive feature provides answers and explantions, along with your score. Maybe some of you has a part II practice exam for 2016 (the one officially provided by GARP on their website for free). The most recent of these publications that is available free of charge is the E-Book 2021 frm exam part i books pdf , the first part of the famous three- part exam. If we observe two (2) exceptions in a row, what is the posterior probability that the model is actually bad (bonus: what is the probability of observing an exception tomorrow)? The following are well-diversified portfolios; e.g., Portfolio (A) has a beta sensitivity to factor the first factor, (F1), of 1.20 and an expected return of 13.0%: Which is the correct return-beta relationship in this economy? Winter includes December, January, and February. This field is for validation purposes and should be left unchanged. For example, at many institutions, finance and treasury have had ownership of the budgeting process. Tlc Hello valued visitor! Every study package that we offer includes access to our practice questions. The model starts in November 2016; for example, y(T+1) refers to December 2016 and y(T+2) refers to January 2017. Hi @Tipo. Chapter 11: Commodity Forwards and Futures. Bionic Turtle. I don't know about the watch (I had assumed the environments each maintain public clock but that's an imagined assumption). Practice Question Set: Pricing Financial Forwards and Futures. Results are being recorded. They retire with a pension equal to 70.0% of their final salary. David discusses a mistake in one of GARP's Pre-Study Practice Exams. Portfolio A has a high volatility, (A) = 50.0% per annum, but its correlation to the market portfolio is only, (A, M) = 0.30, Portfolio B has a moderate volatility, (B) = 30.0% per annum, and its correlation to the market portfolio is, (B, M) = 0.70, Bond A is a $100.00 face value bond with 7.0 years to maturity that pays a monthly coupon at a rate of 6.0% per annum and offers a yield of 5.0% per annum (with monthly compound frequency), Bond B is a $100.00 face value bond with 10.0 years to maturity that pays a semi-annual coupon at a rate of 4.0% per annum and offers a yield of 5.0% per annum (with semi-annual compound frequency), Bond C is a $100.00 face value bond with 10.0 years to maturity that pays an annual coupon at a rate of 7.0% per annum and offers a yield of 6.0% per annum (with annual compound frequency), Bond D is a $1,000.00 face value zero-coupon bond with 30.0 years to maturity that offers a yield (aka, yield to maturity) of 8.0% per annum with semi-annual compound frequency. BT was the right choice. It means that if you want to explore a question (and its answer) further, you just click the link to its thread in the forum. The bond under consideration is a 12.0% semi-annual coupon bond that matures on July 10th, 2025. A company employs a long hedge on the assumption that the futures price will converge to the spot price in December, when the contract matures. For these four objectives, Peter has three basic multi-factor risk metrics: key-rate exposures, partial 01s, and forward-bucket 01s. 409.1. Seasonality is reflected by the intercept (20.10) plus the three seasonal dummy variables (D2, D3, and D4) in order to capture quarterly seasonality. Chapter 2: How Do Firms Manage Financial Risk? Passed part 1 from the first time with top quartiles and passed part 2 from the first time as well. document.getElementById( "ak_js_1" ).setAttribute( "value", ( new Date() ).getTime() ); Quiz complete. Which of the following is nearest to the optimal number of contracts that should be used to hedge? This FRM Part 1 interactive mock exam consists of 100 practice questions. Hence, centralized stress testing could be housed in such a central function. Which is nearest to the implied 393-day zero rate expressed per annum with continuous compounding? Practice Question Set: How Do Firms Manage Financial Risk? During a 36-month period during which the risk-free rate was 2.0%, consider a comparison between the market portfolio and two fund managers, Betty and Peter: If the capital asset pricing model (CAPM) is valid, then each of the following statements is true EXCEPT which is false? Exceptions occur independently (i.i.d.). To hedge risk, the firms toolbox includes derivatives such as swaps, futures, forwards, and options. The percentage gamma of each put option was +0.0120. Which of the following is probably her BEST approach to the problem? For example, in a decentralized approach towards stress testing, consistency across the organisation becomes important, and the institution will need to find ways of ensuring that consistency.[1]. With respect to these puts, the immediate percentage delta, = -0.2550 and gamma, = 0.0130. In regard to her VaR backtest over 120 days, each of the following statements is true EXCEPT which is false? Because the capital multiplier, CM, is set at 5.50 to reflect a specified confidence level, the economic capital for Exposure #1, EC(#1) = $417,348 * 5.50 = $2,295,415, or about $2.30 million. Peter is a Financial Analyst whose boss asked him to develop a model, or if necessary a set of models, that are multi-factor risk models for the firms fixed income and derivative investment portfolios. For the purpose of scaling the daily volatility to annual volatility, we will further assume i.i.d. We also include a forum link on the answer pages of the question set PDF. The price of the put is $3.50. Let W = 0.80*X + 0.20*Y with the assumption that X and Y are independent; that is, this W is the sum of independent, random variables. Your firm employs a 95.0% value at risk (VaR) model and monitors its performance by comparing the actual daily profit and loss (P&L) to the VaR level. If the observed six-month forward price on the commodity, F(0, 0.5), is $30.40 then which of the following is the correct arbitrage trade (i.e., trade that exploits the arbitrage opportunity)? Analyst Patricia is analyzing the following four bonds: In terms of their current theoretical prices, which bonds are, respectively, the cheapest and most expensive (among the four)? Securitization is a trend that is over fifty years old: The Housing and Urban Development Act of 1968 gave birth to Ginnie Mae (https://www.ginniemae.gov/) in an effort to promote homeownership by way of guaranteeing residential mortgage-backed securities (MBS). However, if the VaR model is bad (inaccurate), then the conditional probability of an exception is 10.0%. Yesterday a web page hosted by Acme received tens of thousands of page views, but some were views by malicious bots. Access our active community about FRM exam concepts on the Bionic Turtle Forum. Henrys firm is contemplating a switch from spreadsheets to data analytics software primarily because his firms risk managers believe that the spreadsheets are responsible for too many errors. A 30-year zero-coupon bond with a face value of $100.00 has a yield of 5.0% per annum with continuous compounding. Risk reports based on risk data should be accurate, clear and complete. Consider a European call option on a non-dividend-paying stock that has a current price, c = $6.37, if we make the following assumptions: Each of the following changes will INCREASE the value of this option, but which factor change will produce the SMALLEST change to the options value? What is the portfolios Sharpe measure? All with BT! The four countries are summarized in the exhibit below: Which of the four countries is most likely to default? As GARP explains (see Figure 4.2 of Chapter 4)there have been several milestones along the way. (here is a Z lookup table snippet that you can use http://www.bionicturtle.com/images/2018/forum/082718-t4-815-1-zlookup.jpg). But ours passes the test so we will approximate with the normal distribution. The forward LIBOR rate for the period between 6 and 12 months is 3.00% with semiannual compounding. If V(1) and V(2) are each variables characterized by a uniform distribution, which is nearest to the joint probability Pr[V(1) < 0.050, V(2) < 0.050] under a Gaussian copula model? Barbara utilizes Monte Carlo simulation. I found out that I scored in the top quartile of every topic and I absolutely could not have done this without using BT - I spent many, many hours going over the practice questions and answers! At the current stock price, each option has a value of $5.88 and each options percentage delta, = +0.410. You must log in or register to reply here. JavaScript is disabled. Bionic Turtle's Practice Questions We currently have over 4,500 practice questions, published in our study planner and in the forum. The following joint probability matrix captures the relationship between Inflation (which can be either Down, Steady or Up) and the Market (which can be either Bear, Range-bound, or Bull): About this joint probability matrix, each of the following statements is correct EXCEPT which is false? The Political Risk index is based on 100 points, Financial Risk on 50 points, and Economic Risk on 50 points. What is the variables expected value? The sample mean is 1.50 bugs per sheet with a (sample) standard deviation of 0.90. If the actual loss exceeds the VaR, this is called an exception. There is an unconditional (aka, prior) 80.0% probability that your firms VaR model is good; in this case of an accurate model, an exception will occur with 5.0% (conditional) probability. The monthly yield volatility is 100 basis points; i.e., the annual basis-point volatility is 1.0% * sqrt(12) = 3.46%. If we assume a reasonable shock value (i.e., less than 100 basis points), which of the following is nearest to the bonds effective convexity? Among the following choices, which best summarizes the final stock price required (in nine months, at expiration) in order for the trader to realize at least a positive net PROFIT on this trade? The unknowns are the two risk premiums on the two factors, F(1) and F(2): If Portfolio C has betas as given by (C,1) = 1.30 and (C,2) = 0.90, what is the expected excess return of Portfolio C? Unfortunately, although we've given plenty of feedback over the years, technical mistakes persist . GARP explains that risk management must be implemented across the entire enterprise under a set of unified policies and methodologies. Consider a credit portfolio that contains three positions. This return is possible because he will not be repaid until the bond matures in ten (10) years. Hence you can not start it again. Earned Point(s): 0 of 0, (0) Accurate, complete and timely data is a foundation for effective risk management. Practice Question Set: Modeling and Hedging Non-Parallel Term Structure Shifts Instructional Video: Modeling and Hedging Non-Parallel Term Structure Shifts Chapter 14: Binomial Trees Specifically, GARP says, Economic capital provides the firm with a conceptually satisfying way to balance risk and reward. The risk-free rate is 3.0% and the stock price of Discovery Communications (ticker: DISCK) is $20.00. The hedge funds incentive fees are calculated on the return after management fees.