What is nearest to the bonds quoted price? Get 10% OFF On Bionic Turtle Advanced Plan with Bionic Turtle Coupon Code The students can take part in the Interactive Mock Exams, Quizzes and spreadsheets by subscribing to the Bionic Turtle advanced plan. 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)? Her sample window included 120 trading days. The four countries are summarized in the exhibit below: Which of the four countries is most likely to default? Their overlap is graphed by the green rectangle such that Pr(A B) = 27.0%. The company goes long four contracts, each for 25,000 pounds of copper.[1]. Barbara is a certified FRM who previously generated income statement and profit projections over a five-year horizon in response to her clients request. You must log in or register to reply here. For example, at many institutions, finance and treasury have had ownership of the budgeting process. The spot price of copper is $2.80 in March while the December futures contract price is $2.90; i.e., the forward curve is in contango with a -$0.10 basis. Below are displayed the price changes and the resulting OLS regression line; for example, the coefficient of determination equals 0.7747 which is the square of the correlation coefficient. For a better experience, please enable JavaScript in your browser before proceeding. They retire with a pension equal to 70.0% of their final salary. The standard deviation of the change, S, in jet fuel prices per gallon was $0.0210 and the standard deviation of the change, F, in the futures price for the contract on heating oil was $0.0280. If the futures price for a contract deliverable in six months is $0.0610 (i.e., about 16.39 pesos per one US dollar), then which of the following best exploits the arbitrage opportunity (this question is inspired by Hulls EOC Problem 5.14)[1]? Thanks! Consider the following discrete probability distribution of asset returns: As shown, this assets expected return is +2.55%. (this is a variation on Hulls EOC Question 2.15)[1]. 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. In his first step, he specified a geometric Brownian motion (GBM) which is the same process used in the Black-Scholes-Merton model. If this is the case, then which of the following is nearest to the bonds dollar value of 01 (DV01)? Which is nearest to the simple (i.e., historical unweighted), unbiased per annum volatility estimate? Two prominent portfolios (minimum variance and market portfolio) are also plotted. Stay in the know with all things Bionic Turtle. GARP does not endorse, promote, review or warrant the accuracy of the products or services offered by Bionic Turtle of GARP Exam related information, nor does it endorse any pass rates that may be claimed by Bionic Turtle. Peter the Risk Analyst has employed a two-step (i.e., three months per step) binomial model to price the option, as displayed below: Peters model matches the up and down movements to his estimate of the stocks prospective volatility, which he assumes is 34.0% per annum. 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? 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. This means that there are at least 6 new practice questions posted every week. 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. The bond under consideration is a 12.0% semi-annual coupon bond that matures on July 10th, 2025. However, upon further inspection, Robin considers an alternative to the above-mentioned bullet investment in the 10-year 2 3/8s. The price of a six-month, USD 25.00 strike, European put option on a stock is USD 3.00.. "/> These assumptions are illustrated below. From Toughgreens perspective, if the stock price increases by +$3.00 to $93.00, which is nearest to the impact on the positions value? What does the model predict for October 2018? This section is visible to all members. The answers and in-depth explanations are posted in their relevant paid forum section. The chapter on IRM (Insurance Risk Management) has. In the wake of the global financial crisis (GFC), stress testing has received prominent media attention. The option term is six months. There is not real "most recent" concept which applies as they are all meant to address the sustainable P1 exam body. Which statement is TRUE about the shape of the commodities forward curve? 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? If you prepare with questions that are too easy, the exam will be frustrating. 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. A bond portfolio with a face value of $7.0 million is exposed to the following two key rates: As the curve experiences significant non-parallel shifts, the correlation between the key rates is only 0.440. The (actual) number of days between January 10, 2018, and April 20, 2018, is 100; and the (actual) number of days between January 10, 2018, and July 10, 2018, is 181. However, data alone does not guarantee that the board and senior management will receive appropriate information to make effective decisions about risk. The final column displays the weight of each cash flows present value as a proportion of the bonds price. Further, GARP is not responsible for any fees or costs paid by the user to Bionic Turtle nor is GARP responsible for any fees or costs of any person or entity providing any services to Bionic Turtle. The company anticipates the spot/futures price will be $3.00 in December. obligors where each obligor has a default probability of 5.0%. Which of the following is TRUE? Assume the riskfree rate is 3.0% while the market portfolio has a return of 13.0% (i.e., excess return is 10.0%) with volatility of 15.0%. Which of the following is TRUE about the SWIFT (Society for Worldwide Interbank Financial Telecommunication) case study? To be more specific, Quotecans capacity to repay may be impaired if adverse economic conditions materialize, or if circumstances suddenly change. section of the forum. The price of the put is $3.50. Instructional Videos . Hello BT. Using the Margrabe under these assumptions, the price of this BTC-for-ETH exchange option is $723.11. The stocks volatility is 36.0% per annum. In this way, the relative VaR is zero. If the future contracts settlement price is $99.00, then which bond is the cheapest to deliver (CTD)? Sally owns a non-dividend-paying stock that is currently trading at $60.00. You must sign in or sign up to start the quiz. The monthly returns for the most recent 36 months are displayed below; the sample volatility is observed to be 32.0%. Instructional Video: Pricing Financial Forwards and Futures. 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). Let f(x) represent a probability function (which is called a probability mass function, p.m.f., for discrete random variables and a probability density function, p.d.f., for continuous variables) and let F(x) represent the corresponding cumulative distribution function (CDF); in the case of the continuous variable, F(X) is the integral (aka, anti-derivative) of the pdf. About the use of derivatives to hedge, each of the following is true EXCEPT which is inaccurate? David discusses a mistake in one of GARP's Pre-Study Practice Exams. I subscribed to BT for my Part 1 FRM exam and just wanted to say thanks for the depth and breadth of the study materials and practice questions. The interactive feature provides answers and explantions, along with your score. The risk-free interest rate is 2.0% per annum with continuous compounding. The six-month interest rates in Mexico and the United States are 7.0% and 1.0% per annum, respectively, with continuous compounding. Peter is analyzing a granular portfolio that consists of 300 independent and identically distributed (i.i.d.) He regressed the benchmark index returns, B(i), as the dependent (aka, response) variable against portfolio returns, R(i), as the independent (aka, explanatory) variable. 0 Essay(s) Pending (Possible Point(s): 0). 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}. Which is nearest to the implied 393-day zero rate expressed per annum with continuous compounding? The pension funds income is invested in bonds that earn the inflation rate. 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. He instructed his broker to short 1,000 shares. Sally the Risk Analyst conducted a backtest of her firms 99.0% confident value at risk (VaR) model. To measure portfolio volatility by assuming a term structure of volatility but doing so without an excessive curse of dimensionality; i.e., avoiding too many correlation pairs. Chapter 2: How Do Firms Manage Financial Risk? Case studies that feature financial engineering by way of complex derivatives include Bankers Trust, the Orange County case, and Sachsen Landesbank. 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%). Study Notes: How Do Firms Manage Financial Risk? Jun 21, 2021 . About these limits, which of the following is TRUE? The forward LIBOR rate for the period between 6 and 12 months is 3.00% with semiannual compounding. You have already completed the quiz before. In order to evaluate the potential of a linear relationship between portfolio returns and a benchmark index, your colleague Richard conducted a univariate regression analysis. Which of the following is nearest to the risk-neutral probability of the stock price going up in a single step? Couldn't have done it otherwise. If the yield drops to 6.850%, the bonds price increases to $120.900. He calculates the future principal repayment, but his calculation assumes the rate is an equivalent annual interest rate; aka, effective annual rate. In regard to loss given default (LGD), the Portfolio Manager estimates an (LGD) of 40.0% with a standard deviation, (LGD), of 40.0%. Financial Risk Manager (FRM). A credit portfolio contains five identical bonds. This FRM Part 1 interactive mock exam consists of 100 practice questions. Exceptions occur independently (i.i.d.). 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. 4 Topics. The put options were in-the-money as the stock price was $70.00 while the options strike price was $100.00. . Each question began its life in our private forum! Get answers from top experts, collaborate with peers, and receive study materials that are impactful and leverage success. Which of the following is probably her BEST approach to the problem? After an analysis of the interest rate environment, she is comfortable with the pricing of the bond at a yield of 3.60% and with its duration of 8.32 years. The daily standard deviation of a risky asset is 1.40%. All with BT! Compliance with these principles should not be at the expense of each other [1]. 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)? Specifically, there are four objectives as follows: I. What is the variables expected value? With respect to these puts, the immediate percentage delta, = -0.2550 and gamma, = 0.0130. 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 of the following is nearest to the bond portfolios 99.0% one-month value at risk (relative VaR: worst expected loss relative to expected future value)? Chapter 3: The Governance of Risk Management, Study Notes: The Governance of Risk Management, Practice Question Set: The Governance of Risk Management, Instructional Video: The Governance of Risk Management, Chapter 4. Credit Risk Transfer Mechanisms, Study Notes: Credit Risk Transfer Mechanisms, Practice Question Set: Credit Risk Transfer Mechanisms, Instructional Video: Credit Risk Transfer Mechanisms, Chapter 5: Modern Portfolio Theory (MPT) and the Capital Asset Pricing Model (CAPM), Study Notes: Modern Portfolio Theory (MPT) and the Capital Asset Pricing Model (CAPM), Practice Question Set: Modern Portfolio Theory (MPT) and the Capital Asset Pricing Model (CAPM), Instructional Video: Modern Portfolio Theory (MPT) and the Capital Asset Pricing Model (CAPM), Chapter 6: The Arbitrage Pricing Theory and Multifactor Models of Risk and Return, Study Notes: APT and Multifactor Models of Risk and Return, Practice Question Set: APT and Multifactor Models of Risk and Return, Instructional Video: APT and Multifactor Models of Risk and Return, Chapter 7: Principles for Effective Data Aggregation and Risk Reporting, Study Notes: Principles for Effective Data Aggregation and Risk Reporting, Practice Question Set: Risk Data Aggregation and Reporting Principles, Chapter 8: Enterprise Risk Management and Future Trends, Study Notes: Enterprise Risk Management (ERM) and Future Trends, Practice Question Set: ERM and Future Trends, Chapter 9: Learning from Financial Disasters, Study Notes: Learning from Financial Disasters, Practice Question Set: Learning from Financial Disasters, Instructional Video: Learning from Financial Disasters, Chapter 10: Anatomy of the Great Financial Crisis, Study Notes: Anatomy of the Great Financial Crisis, Practice Question Set: Anatomy of the Great Financial Crisis, Instructional Video: Anatomy of the Great Financial Crisis, Practice Question Set: GARP Code of Conduct, Foundations of Risk Management Interactive Quiz, Practice Question Set: Fundamentals of Probability, Instructional Video: Fundamentals of Probability, Chapter 3: Common Univariate Random Variables, Study Notes: Common Univariate Random Variables, Practice Question Set: Common Univariate Random Variables, Instructional Video: Common Univariate Random Variables, Study Notes: Multivariate Random Variables, Practice Question Set: Multivariate Random Variables, Practice Question Set: Hypothesis Testing, Instructional Video 1 of 2: Linear Regression, Instructional Video 2 of 2: Linear Regression, Chapter 8: Regression with Multiple Explanatory Variables, Study Notes: Regression with Multiple Explanatory Variables, Practice Question Set: Regression with Multiple Explanatory Variables, Instructional Video 1 of 2: Regression with Multiple Explanatory Variables, Instructional Video 2 of 2: Regression with Multiple Explanatory Variables, Practice Question Set: Regression Diagnostics, Practice Question Set: Stationary Time Series, Instructional Video: Stationary Time Series, Practice Question Set: Nonstationary Time Series, Instructional Video: Nonstationary Time Series, Chapter 12: Measuring Return, Volatility, and Correlation, Study Notes: Measuring Return, Volatility, and Correlation, Practice Question Set: Measuring Return, Volatility, and Correlation, Instructional Video 1 of 2: Measuring Return, Volatility, and Correlation, Instructional Video 2 of 2: Measuring Return, Volatility, and Correlation, Study Notes: Simulation and Bootstrapping, Practice Question Set: Simulation and Bootstrapping, Instructional Video: Simulation and Bootstrapping, Learning Spreadsheets: P1.T2.a XLS Bundle, Learning Spreadsheets: P1.T2.b XLS Bundle, Learning Spreadsheets: P1.T2.c XLS Bundle, Learning Spreadsheets: P1.T2.d XLS Bundle, Chapter 2. 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