Free GARP FRM-Part-1 Exam Questions

Question 1

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 : AUD 184.06

B : AUD 226.99

C : AUD 307.66

D : AUD 491.72

Answer: C

Question 2

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 : AUD 184.06

B : AUD 226.99

C : AUD 307.66

D : AUD 491.72

Answer: C

Question 3

Regarding a xed-rate, level payment, and fully amortized mortgage loan, which of the following statements is false?

A : Each payment consists of an interest component and a principal component.

B : Payments are equal over the life of the loan.

C : Principal repayment falls as interest payments rise over the life of the loan.

D : Interest payments fall as principal payments rise over the life of the loan.

Answer: C

Question 4

Given the spot rates for the 6-month and 1-year maturing bond, the 6-month forward rate 6 months from now is closest to:

A : 7.28%.

B : 6.54%.

C : 5.86%.

D : 6.04%.

Answer: B

Question 5

An operational risk manager is presenting to a group of risk analysts about different techniques to model operational risk. An analyst asks the manager about the appropriate use of the power law in estimating operational losses. Which of the following would be a correct statement for the manager to make about the use of the power law?

A : It is suitable for modeling the tail of the operational loss distribution, but not for modeling the body of the distribution.

B : It implies that operational losses tend to follow a normal distribution.

C : It is more effective in modeling some types of operational risk, such as losses from fraud, than others, such as losses from natural disasters.

D : It is generally used to estimate routine operational losses which occur at a relatively high frequency.

Answer: A