Foundations of Risk Management — FRM Part 1 Practice Questions

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1. According to the CAPM, which type of risk are investors compensated for bearing?
2. What specific variety of liquidity risk is being described?
3. How is 'Risk Capacity' distinguished from 'Risk Appetite' in a standard risk governance framework?
4. If two portfolios have the same Sharpe ratio but one has positive skewness and the other has negative skewness
5. In a 'Liquidity Spiral', what is the primary channel by which market liquidity risk and funding liquidity risk
6. In the context of the CAPM, what is the definition of 'Alpha' (α)?
7. In the risk decomposition formula σ^2_i = β^2_i σ^2_M + σ^2_ε, what does σ^2_ε represent?
8. The BCBS 239 principle of 'Timeliness' suggests that risk reporting should be more frequent during which of th
9. Which link completes the following sequence: Funding Pressure rightarrow Fire Sales rightarrow dots rightarrow
10. The 'Tangency Portfolio' on the efficient frontier is also known in equilibrium as:
11. The 'Two-Fund Separation' theorem suggests that all investors will hold a combination of which two things?
12. What is its approximate yield to maturity (YTM)?
13. If the correlation of losses between the two units is estimated to be ρ = 0.30, what is the total aggregate ec
14. According to the Capital Asset Pricing Model (CAPM), what is the project's Jensen's Alpha?
15. An analyst regresses a stock's excess returns against the Fa… — What is the best interpretation of this differ
16. Which pricing framework is most flexible for incorporating these specific macroeconomic risks?
17. An investor adds a momentum factor (WML) to a Fama-French th… — This new model is commonly known as:
18. What is the calculated Sortino Ratio?
19. A portfolio has a Sharpe ratio of 0.50. If the investor adds leverage by borrowing at the risk-free rate to do
20. If the correlation between the portfolio and the new asset is 0.0, and the manager allocates 20% of the funds
21. A risk professional is assessing the 'Hedging Paradox.' According to the Modigliani-Miller theorem, why would
22. In a CAPM context, what fraction of the stock's variance is systematic?
23. If a portfolio has a Sharpe ratio of 0.60 and a correlation with the market of 0.80, what is the Sharpe ratio
24. In a scenario where an investor is considering adding a new fund to an existing, well-diversified portfolio of
25. In the context of Modern Portfolio Theory, if an investor adds a risky asset to their portfolio that is perfec
26. In the Fama-French three-factor model, the factor HML ('High Minus Low') is designed to capture the risk premi
27. In the hierarchy of risk governance, which of the following relationships correctly identifies the standard co
28. Under the GARP Code of Conduct, if a risk manager becomes aware that a colleague is deliberately falsifying ri
29. Under what specific condition will the Sharpe Ratio and the Treynor Ratio provide identical rankings for a gro
30. According to the Risk Practitioner's Treatise, what is the primary danger of this configuration?