Free GARP FRM-Part-1 Exam Questions

Question 1

Which of the following liquidity de nitions is most likely associated with funding liquidity?

A : The length of time it will take an asset to regain its price after the price has fallen temporarily.

B : The loss that would be sustained by a trader who sells an asset and then immediately buys it back.

C : The number of units of an asset a trader can buy or sell at the current market quote (bid and ask prices).

D : The risk that investors may not be able to roll over short-term debt to nance the purchase of an asset.

Answer: D

Question 2

Which of the following statements is true regarding the mixture of distributions for risk modeling?I. Distributions should never be combined.II. It may be helpful to create a new distribution if the underlying data you are working with does not currently fit a pre-determined distribution.

A : Both I and II.

B : I only.

C : II only.

D : Neither I nor II.

Answer: C

Question 3

A $2 million balanced portfolio is comprised of 40 percent stocks and 60 percent intermediate bonds. For the next year, the expected return on the stock component is 9 percent and the expected return on the bond component is 6 percent. The standard deviation of the stock component is 18 percent and the standard deviation of the bond component is 8 percent. What is the annual VAR for the portfolio at a 1 percent probability level if the correlation between the stock and the bond component is 0.25?

A : $149,500.

B : $303,360.

C : $152,250.

D : $126,768.

Answer: B

Question 4

A $2 million balanced portfolio is comprised of 40 percent stocks and 60 percent intermediate bonds. For the next year, the expected return on the stock component is 9 percent and the expected return on the bond component is 6 percent. The standard deviation of the stock component is 18 percent and the standard deviation of the bond component is 8 percent. What is the annual VAR for the portfolio at a 1 percent probability level if the correlation between the stock and the bond component is 0.25?

A : $149,500.

B : $303,360.

C : $152,250.

D : $126,768.

Answer: B

Question 5

The predictions that are generated from an underfitted model will likely have:

A : high bias and low variance.

B : high bias and high variance.

C : low bias and low variance.

D : low bias and high variance.

Answer: A