Free GARP FRM-Part-1 Exam Questions

A risk manager at a bank is measuring the sensitivity of a bond portfolio to non-parallel shifts in spot rates. The portfolio currently holds a 4-year zero coupon bond and a 7-year zero coupon bond with the following sensitivities to these respective spot rates:Spot rate AND Change in portfolio value for 1-bp increase in spot rate (AUD)4-year -189.277-year -302.45To model the non-parallel movement of the spot rate curve, the manager treats the 2-year, 5-year, and 10-year spot rates as key rates. Given this information, what is the portfolio’s key rate 01 (KR01) for a 1-bp increase in the 5-year rate?

A risk analyst uses the bootstrap method to assess the market risk of a global equity portfolio that experienced significant volatility in the recent past. The analyst applies independent and identically distributed (IID) bootstrapping to the extracted standardized residuals of the fitted model, and these bootstrapped standardized residuals are then used to generate time paths of future asset returns. In the final step, the simulated data is used to estimate the VaR of the global equity portfolio over a 1-month horizon. Which of the following will the analyst find to be correct when applying the IID bootstrap method?

A risk analyst at an asset management company is assessing the past performance of an internally managed equity fund. The analyst obtains the following information on the market and the fund over the last year:• Treynor performance index for the fund: 8.00%• Return of the market portfolio: 5.60%• Beta of the fund: 0.65• Risk-free rate of interest: 1.75%Based on the information above, what is the Jensen’s alpha for the equity fund over the same period?

Bonds rated B have a 25% chance of default in five years. Bonds rated CCC have a 40% chance of default in five years. A portfolio consists of 30% B and 70% CCC-rated bonds. If a randomly selected bond defaults in a five-year period, what is the probability that it was a Brated bond?

The board of directors of a growing asset management company is conducting a review of the firm’s approach to risk management. The board concludes that the firm should establish an ERM framework. Which of the following represents a key benefit that the firm will likely attain after establishing an ERM framework?