Free GARP FRM-Part-1 Exam Questions

A senior analyst at a financial institution is giving a presentation to a group of junior analysts on the features of the power law and its uses. The senior analyst notes that the power law is particularly important in understanding the tails of distributions. Which of the following is correct regarding the power law?

A fund holds $10 million nominal of the XYZ 5.5% 30-year bond. It enters into a one month dollar roll with arepo dealer bank in which it sells the security at a price of 100-08 and buys it back at a forward price of par.Assuming that the security experiences a 2% paydown (scheduled principal plus prepayments) during the term ofthe trade, estimate the value of the drop.

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?

A market risk analyst at a regional bank is calculating the annual VaR of portfolio of investment securities. The portfolio has a current market value of USD 3,700,000 with a daily variance of 0.0004. Assuming there are 250 trading days in a year and the daily portfolio returns are independent and follow the same normal distribution with a mean of zero, what is the estimate of the 1-year VaR at the 95% confidence level?

An analyst is currently considering a portfolio consisting of two stocks. The first stock, Remba Co., has an expected return of 12% and a standard deviation of 16%. The second stock, Labs, Inc., has an expected return of 18% and a standard deviation of 25%. The correlation of returns between the two securities is 0.25.If the analyst forms a portfolio with 30% in Remba and 70% in Labs, what is the portfolio's expected return?