Free GARP FRM-Part-2 Exam Questions

Question 1

A risk analyst is evaluating an investment portfolio using the Fama-French threefactormodel. The analyst regresses thirty years of weekly portfolio returns againstthe three factors of the model. The analyst obtains the following regression results:Alpha 0.10Market coefficient 0.52SMB coefficient 0.18HML coefficient -0.70Assuming all estimated coefficients are statistically significant, which of the following is correct?

A : indicates that the portfolio moves together with large-cap stocks.

B : indicates that the portfolio moves together with growth stocks.

C : indicates that the portfolio moves together with growth stocks.

Answer: C

Question 2

A risk analyst is evaluating an investment portfolio using the Fama-French threefactormodel. The analyst regresses thirty years of weekly portfolio returns againstthe three factors of the model. The analyst obtains the following regression results:Alpha 0.10Market coefficient 0.52SMB coefficient 0.18HML coefficient -0.70Assuming all estimated coefficients are statistically significant, which of the following is correct?

A : indicates that the portfolio moves together with large-cap stocks.

B : indicates that the portfolio moves together with growth stocks.

C : indicates that the portfolio moves together with growth stocks.

Answer: C

Question 3

The Bureau of Labor Statistics has just reported an unexpected short-term increase in high-priced luxury automobiles. What is the most likely anticipated impact on a mean-reverting model of interest rates?

A : The economic information is long-lived with a low mean reversion parameter.

B : The economic information is long-lived with a high mean reversion parameter.

C : The economic information is short-lived with a high mean reversion parameter.

D : The economic information is short-lived with a low mean reversion parameter.

Answer: C

Question 4

A treasurer at a US-based bank is reviewing the bank’s balance sheet and wants toevaluate the sensitivity of the bank’s net worth to a potential change in interestrates. The treasurer asks a manager to apply duration analysis to assess the impactof a 100-bps change in interest rates on the bank’s net worth. Which of the followingis a correct statement for the manager to make?

A : The percentage change in the value of an asset or liability resulting from a 100-bpschange in interest rates is directly proportional to its duration but is unaffected bythe corresponding percentage change in interest rates.

B : A prepayable mortgage loan has a higher duration than an identical non-prepayableloan and is typically more sensitive to overall interest rate changes.

C : The sensitivity of assets and liabilities to changes in interest rates is greater whenthe coupon is lower, the duration is higher, or the overall level of interest rates is lower.

D : Using USD 100 million of cash to pay a cash dividend will not affect the overallasset duration of the bank.

Answer: C

Question 5

As part of a broader assessment of migration risk, a risk analyst at a rating agency examines the observed defaults of a given rating class of corporate issuers. The rating class contained 348 names (number of issuers) at the end of 2016, which was the time of origination. The number of issuers that have not defaulted over the past 3 years is shown in the table below:Year AND Number of non-defaulted names at end of year2016: 3482017: 3392018: 3332019: 329Assuming no new issuers were added to the rating class throughout the holding period, what is the estimate of the 1-year marginal probability of default in the year 2019?

A : 1.15%

B : 1.20%

C : 1.72%

D : 1.77%

Answer: A