Foundations of Risk Management — FRM Part 1 Practice Questions

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1. In the context of the CAPM, what is the definition of 'Alpha' (α)?
2. What is the calculated Sortino Ratio?
3. If two portfolios have the same Sharpe ratio but one has positive skewness and the other has negative skewness
4. If the correlation between the portfolio and the new asset is 0.0, and the manager allocates 20% of the funds
5. What is its approximate yield to maturity (YTM)?
6. The BCBS 239 principle of 'Timeliness' suggests that risk reporting should be more frequent during which of th
7. An investor adds a momentum factor (WML) to a Fama-French three-factor model. This new model is commonly known
8. In a 'Liquidity Spiral', what is the primary channel by which market liquidity risk and funding liquidity risk
9. In the risk decomposition formula σ^2_i = β^2_i σ^2_M + σ^2_ε, what does σ^2_ε represent?
10. The 'Two-Fund Separation' theorem suggests that all investors will hold a combination of which two things?
11. According to the Capital Asset Pricing Model (CAPM), what is the project's Jensen's Alpha?
12. If the correlation of losses between the two units is estimated to be ρ = 0.30, what is the total aggregate ec
13. An analyst regresses a stock's excess returns against the Fa… — What is the best interpretation of this differ
14. Which pricing framework is most flexible for incorporating these specific macroeconomic risks?
15. What specific variety of liquidity risk is being described?
16. According to the CAPM, which type of risk are investors compensated for bearing?
17. How is 'Risk Capacity' distinguished from 'Risk Appetite' in a standard risk governance framework?
18. Which link completes the following sequence: Funding Pressure rightarrow Fire Sales rightarrow dots rightarrow
19. The 'Tangency Portfolio' on the efficient frontier is also known in equilibrium as:
20. A portfolio has a Sharpe ratio of 0.50. If the investor adds leverage by borrowing at the risk-free rate to do
21. Under the GARP Code of Conduct, if a risk manager becomes aware that a colleague is deliberately falsifying ri
22. What is the bank's leverage ratio under Basel III?
23. Which aspect of ERM governance is most acutely challenged here?
24. In a CAPM context, what fraction of the stock's variance is systematic?
25. If the economic capital allocated to the line is $120 million, what is the RAROC?
26. Under what specific condition will the Sharpe Ratio and the Treynor Ratio provide identical rankings for a gro
27. A risk professional is assessing the 'Hedging Paradox.' According to the Modigliani-Miller theorem, why would
28. If a portfolio has a Sharpe ratio of 0.60 and a correlation with the market of 0.80, what is the Sharpe ratio
29. What is the no-arbitrage price of a six-month forward contract on the index?
30. According to the Risk Practitioner's Treatise, what is the primary danger of this configuration?