The hedge funds incentive fees are calculated on the return after management fees. Further, we have hundreds of practice questions that are discussed in the forum, including at least 200 in-depth discussions of current and previous GARP practice exam questions. 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. The model starts in November 2016; for example, y(T+1) refers to December 2016 and y(T+2) refers to January 2017. The chapter on IRM (Insurance Risk Management) has. Bionic Turtle | A technical note on inferring cumulative default probability from credit spreads. Conditional on the realization of the LIBOR forward rates, the future cash flow in six months is, therefore (2.60% 4.00%)/2 *$100.0 = -$0.70 and its present value is about -$0.70*exp(-0.020*0.50) = -$0.693; that is, we are using the OIS zero rates as the risk-free rate for discounting purposes. Consider the following series of closing stock prices over the ten most recent trading day (this is similar to Hulls Table 10.3)[1] along with daily log returns, squared returns and summary statistics: Although the actual average historical return is non-zero (i.e., -0.001511), for purposes of estimating volatility we will assume that the expected daily mean return is zero. Keep up the fantastic work! The fund of funds incentive fee is calculated on the net (after management and incentive fees) average return of the hedge funds in which it invests and after its own management fee has been subtracted. This field is for validation purposes and should be left unchanged. 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. His advisor informs him that the actual rate is 7.0% per annum with monthly compounding. The stocks volatility is 36.0% per annum. 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. JavaScript is disabled. returns and 250 trading days per year. Which is nearest to the bonds duration (please note that because the yield is continuously compounded, this is the special case where Macaulay duration is equal to modified duration, so we dont really need to specify which!)? It is currently March and a company plans to purchase copper in December. 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. Thanks! Peter is analyzing a granular portfolio that consists of 300 independent and identically distributed (i.i.d.) The pension is received for 18.0 years. Which of the following is TRUE about the banks audit function? If the variance of the estimate, var(x), of his quantity of interest is 36.0 and he requires a standard error of the estimate, S(x), to be no greater than 0.10, how many replications does his simulation require? Which is nearest to the return to investors in the fund of funds? Hi @Tipo. In Bionic Turtle, you will get a study planner, notes, videos, and practice question sets. 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. Results are being recorded. Because the initial margin is $6,000 per contact, the investor must deposit a total of $60,000 in the margin account. Alice, Bert, Chris, Don, Eva, and Fred are individual investors. The per annum volatility of Bitcoin is 50.0% and the volatility of Ethereum is 38.0%. The price of a six-month, USD 25.00 strike, European put option on a stock is USD 3.00.. "/> If the stock price jumps by +$7.00 to $95.00, which is nearest to the positions value as approximated by delta and gamma; i.e., without a full re-pricing of the position? Over two months, the probability of each days predication being successful, p, equals 5/8 or 62.5% and the number of days, n, equals 60. The riskfree rate is 3.0% and the market portfolios expected return is 10.0% (put another way, the markets excess expected return is 7.0%). Their strike price is $100.00 but the options are underwater because the current stock price is $90.00. What does the model predict for October 2018? If the storage costs suddenly increased from 9.0% per annum (e.g., $0.36 per bushel when the spot price of corn is $4.00 per bushel) to 17.0% per annum (e.g., $0.68 per bushel when the spot price of corn is 4.00 per bushel), which is nearest to the predicted PERCENTAGE INCREASE in the price of a six-month (0.5 years) corn forward contract? 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? This return is possible because he will not be repaid until the bond matures in ten (10) years. 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? 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. (Please note this is based on Hulls EOC Question 3.15)[1]. Suppose that there are two independent economic factors, F1 and F2 . FRM Exam Overview, Registration Guide, and Deadlines, Comparison of the FRM and CFA Designations. Each of the following statements about securitization is true EXCEPT which is false? In regard to Exposure #1, its risk contribution is given by $597,000 * [$597,000 + ($840,000 * 0.40) + ($1,023,500 * 0.40)] / $1,920,250 = $417,348. These materials are quite sufficient to get the FRM certificate. Bionic Turtle. Learning Spreadsheet: Pricing Financial Forwards and Futures. She evaluates the countries in four categories: degree of indebtedness as measured by debt as a percentage of gross domestic product; social service/pension commitments as estimated by the average age of the population; nature of the economy (e.g., diverse versus concentrated in oil as a natural resource), and monetary policy. The unconditional probability of event A is 50.0% and the unconditional probability of event B is 44.0%; i.e., Pr(A) = 50.0% and Pr(B) = 44.0%. In this case, what should be the expected return of Portfolio (C)? 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)? The company goes long four contracts, each for 25,000 pounds of copper.[1]. The bond has a semi-annual yield of 8.0%; i.e., 8.0% per annum with semi-annual compounding. Passed! section of the forum. 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. If you look in the Study Planner, we already do have 4 P1 and 2 P2 mock exams. Trader Joe (who is unrelated to the awesome grocery store!) 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. Like a few others I didn't even both buying the GARP books for Part II and went solely with BT materials. 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. If you prepare with questions that are too easy, the exam will be frustrating. Which of the following is TRUE about the SWIFT (Society for Worldwide Interbank Financial Telecommunication) case study? 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. What is the variables expected value? Bionic Turtle's Practice Questions We currently have over 4,500 practice questions, published in our study planner and in the forum. Just read, answered questions, watched videos, read, more questions, and more questions! The risk-free rate is 4.0%. An investor purchases a European straddle with a strike price of $45.00: a straddle is a call and a put on the same stock with identical strike prices and expiration dates. Regulators estimate that Deposits and Loans Corporation (DLC) will report a profit that is normally distributed with a mean of $1.30 million and a standard deviation of $3.0 million. Below are the joint probabilities for a cumulative bivariate normal distribution with a correlation parameter, , of 0.30. Practice Question Set: Pricing Financial Forwards and Futures. Political Risk Services (The PRS Group) provides numerical measures of country risk for more than a hundred countries. Its price is therefore $104.032 as shown below. On the other hand, the bond carries more credit risk than bonds issued by the highest-rated corporations like, for example, Microsoft (MSFT), Apple (AAPL), Exxon Mobil (XOM), Johnson & Johnson (JNJ), Walmart (WMT). This means that there are at least 6 new practice questions posted every week. 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. Which is nearest to the implied 393-day zero rate expressed per annum with continuous compounding? Which of the following statements about this scenario is TRUE? However, with respect to yield changes at their respective maturities, the correlation between these two bonds is imperfectly at = 0.70. 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)? The percentage gamma of each put option was +0.0120. 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. Which is nearest to an estimate for the forward LIBOR rate for the 18- to 24-month period, F(1.5, 2.0)? Study Notes: How Do Firms Manage Financial Risk? The barbell would be constructed to have the same COST and DURATION as the bullet investment. We currently have over 4,500 practice questions, published in our study planner and in the forum. Which is nearest to the additional impact of the convexity term only? 2021 FRM Exam Part 1 : Foundations of Risk Management has currently been revised with a new introduction and additional content. The forward LIBOR rate for the period between 6 and 12 months is 3.00% with semiannual compounding. In April 2017, Portfolio Manager Jeff believed that the shares of Chorizo Fast Casual Restaurants Incorporated (Chorizo Inc), trading at $380.00 per share, were over-valued. 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. Instructional Video: Pricing Financial Forwards and Futures. It's hard to go through the recommended reading and prepare for the FRM exam. It may not display this or other websites correctly. The plot below illustrates an actual portfolio possibilities curve (PPC, dashed line). 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. The risk-free rate is 1.0%, and all stocks have independent firm-specific components with a standard deviation of 25%. I wanted to express my appreciation and gratitude to your team for your hard work in creating these materials. Thanks again Bionic Turtle for a great curriculum. Practice Question Set: How Do Firms Manage Financial Risk? and where structured in such a manner that the breadth and depth where optimal . 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? The riskfree rate, r, is 1.0% with continuous compounding. What was Jeffs net profit? Risk reports based on risk data should be accurate, clear and complete. Peter the analyst wants to estimate the impact of a 35-basis point increase (shock up) in the yield without fully re-pricing the bond. For example, if p were only 1.0%, then n*p = 6, but 6 is less than 10, and such a binomial is deemed to be too skewed to be approximated by the normal distribution. What is the portfolios Sharpe measure? Insurance Companies and Pension Plans, Study Notes: Insurance Companies and Pension Plans, Practice Question Set: Insurance Companies and Pension Plans, Instructional Video: Insurance Companies and Pension Plans, Learning Spreadsheet: Insurance Companies and Pension Plans, Practice Question Set: Introduction to Derivatives, Instructional Video: Introduction to Derivatives, Learning Spreadsheet: Introduction to Derivatives, Practice Question Set: Exchanges and OTC Markets, Instructional Video: Exchanges and OTC Markets, Central Clearing & Futures Markets, Practice Question Set: Using Futures for Hedging, Instructional Video: Using Futures for Hedging, Learning Spreadsheet: Using Futures for Hedging, Practice Question Set: Foreign Exchange Markets, Instructional Video: Foreign Exchange Markets, Learning Spreadsheet: Foreign Exchange Markets, Chapter 10: Pricing Financial Forwards and Futures, Study Notes: Pricing Financial Forwards and Futures, Practice Question Set: Pricing Financial Forwards and Futures, Instructional Video: Pricing Financial Forwards and Futures, Learning Spreadsheet: Pricing Financial Forwards and Futures, Chapter 11: Commodity Forwards and Futures, Study Notes: Commodity Forwards and Futures, Practice Question Set: Commodity Forwards and Futures, Instructional Video: Commodity Forwards and Futures, Learning Spreadsheet: Commodity Forwards and Futures, Practice Question Set: Properties of Options, Instructional Video: Properties of Options, Learning Spreadsheet: Properties of Options, Practice Question Set: Trading Strategies, Study Notes: Properties of Interest Rates, Practice Question Set: Properties of Interest Rates, Instructional Video: Properties of Interest Rates, Learning Spreadsheet: Properties of Interest Rates, Chapter 18: Mortgages and Mortgage-Backed Securities, Study Notes: Mortgages and Mortgage-Backed Securities, Practice Question Set: Mortgages and Mortgage-Backed Securities, Instructional Video: Mortgages and Mortgage-Backed Securities, Learning Spreadsheet: Mortgages and Mortgage-Backed Securities, Practice Question Set: Interest Rate Futures, Instructional Video: Interest Rate Futures, Learning Spreadsheet: Interest Rate Futures, Financial Markets & Products Topic Review, Financial Markets & Products Focus Review Video (1 of 3), Financial Markets & Products Focus Review Video (2 of 3), Financial Markets & Products Focus Review Video (3 of 3), Learning Spreadsheets: P1.T3.a XLS Bundle, Learning Spreadsheets: P1.T3.b XLS Bundle, Learning Spreadsheets: P1.T3.c XLS Bundle, Learning Spreadsheets: P1.T3.d XLS Bundle, Practice Question Set: Measures of Financial Risk, Instructional Video: Measures of Financial Risk, Study Notes: Calculating and Applying VaR, Practice Question Set: Calculating and Applying VaR, Instructional Video: Calculating and Applying VaR, Learning Spreadsheet: Calculating and Applying VaR, Chapter 3: Measuring and Monitoring Volatility, Study Notes: Measuring and Monitoring Volatility, Practice Question Set: Measuring and Monitoring Volatility, Instructional Video: Measuring and Monitoring Volatility, Study Notes: External and Internal Ratings, Practice Question Set: External and Internal Ratings, Instructional Video: External and Internal Ratings, Chapter 5: Country Risk: Country Risk: Determinants, Measures, and Implications, Study Notes: Country Risk: Country Risk: Determinants, Measures, and Implications, Practice Question Set: Country Risk: Country Risk: Determinants, Measures, and Implications, Instructional Video: Country Risk: Country Risk: Determinants, Measures, and Implications, Practice Question Set: Measuring Credit Risk, Chapter 9: Pricing Conventions, Discounting, and Arbitrage, Study Notes: Pricing Conventions, Discounting, and Arbitrage, Practice Question Set: Pricing Conventions, Discounting, and Arbitrage, Instructional Video: Pricing Conventions, Discounting, and Arbitrage, Learning Spreadsheet: Pricing Conventions, Discounting, and Arbitrage, Chapter 11: Bond Yields and Return Calculations, Study Notes: Bond Yields and Return Calculations, Practice Question Set: Bond Yields and Return Calculations, Instructional Video: Bond Yields and Return Calculations, Chapter 12: Applying Duration, Convexity, and DV01, Study Notes: Applying Duration, Convexity, and DV01, Practice Question Set: Applying Duration, Convexity, and DV01, Instructional Video: Applying Duration, Convexity, and DV01, Chapter 13: Modeling and Hedging Non-Parallel Term Structure Shifts, Study Notes: Modeling and Hedging Non-Parallel Term Structure Shifts, Practice Question Set: Modeling and Hedging Non-Parallel Term Structure Shifts, Instructional Video: Modeling and Hedging Non-Parallel Term Structure Shifts, Chapter 15: The Black-Scholes-Merton Model, Study Notes: The Black-Scholes-Merton Model, Practice Question Set: The Black-Scholes-Merton Model, Instructional Video: The Black-Scholes-Merton Model, Learning Spreadsheet: The Black-Scholes-Merton Model, Chapter 16: Option Sensitivity Measures: The Greeks, Study Notes: Option Sensitivity Measures: The Greeks, Practice Question Set: Option Sensitivity Measures: The Greeks, Instructional Video: Option Sensitivity Measures: The Greeks, Learning Spreadsheet: Option Sensitivity Measures: The Greeks, Valuation and Risk Models Focus Review Video (1 of 3), Valuation and Risk Models Focus Review Video (2 of 3), Valuation and Risk Models Focus Review Video (3 of 3), Learning Spreadsheets: P1.T4.a XLS Bundle, Learning Spreadsheets: P1.T4.b XLS Bundle, Learning Spreadsheets: P1.T4.c XLS Bundle, Learning Spreadsheets: P1.T4.e XLS Bundle.
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