General — 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 a loan has a Probability of Default (PD) of 2.0%, an Exposure at Default (EAD) of $1,000,000, and a Recover
5. If two portfolios have the same Sharpe ratio but one has positive skewness and the other has negative skewness
6. In a 'Liquidity Spiral', what is the primary channel by which market liquidity risk and funding liquidity risk
7. In the context of the CAPM, what is the definition of 'Alpha' (α)?
8. In the risk decomposition formula σ^2_i = β^2_i σ^2_M + σ^2_ε, what does σ^2_ε represent?
9. The BCBS 239 principle of 'Timeliness' suggests that risk reporting should be more frequent during which of th
10. Which link completes the following sequence: Funding Pressure rightarrow Fire Sales rightarrow dots rightarrow
11. The 'Tangency Portfolio' on the efficient frontier is also known in equilibrium as:
12. The 'Two-Fund Separation' theorem suggests that all investors will hold a combination of which two things?
13. What is its approximate yield to maturity (YTM)?
14. What is the Expected Loss (EL)?
15. If market yields rise by 150 basis points (0.015), what is the estimated new price of the bond using both dura
16. If the correlation of losses between the two units is estimated to be ρ = 0.30, what is the total aggregate ec
17. According to the Capital Asset Pricing Model (CAPM), what is the project's Jensen's Alpha?
18. An analyst regresses a stock's excess returns against the Fa… — What is the best interpretation of this differ
19. Which pricing framework is most flexible for incorporating these specific macroeconomic risks?
20. An investor adds a momentum factor (WML) to a Fama-French three-factor model. This new model is commonly known
21. What is the calculated Sortino Ratio?
22. A portfolio has a Sharpe ratio of 0.50. If the investor adds leverage by borrowing at the risk-free rate to do
23. If the correlation between the portfolio and the new asset is 0.0, and the manager allocates 20% of the funds
24. A risk professional is assessing the 'Hedging Paradox.' According to the Modigliani-Miller theorem, why would
25. In a CAPM context, what fraction of the stock's variance is systematic?
26. A stock trades at S_0 = $100. A European call struck at K = $100 expires in 1 year. If the volatility is 20% a
27. If a portfolio has a Sharpe ratio of 0.60 and a correlation with the market of 0.80, what is the Sharpe ratio
28. In a scenario where an investor is considering adding a new fund to an existing, well-diversified portfolio of
29. In the context of Modern Portfolio Theory, if an investor adds a risky asset to their portfolio that is perfec
30. In the Fama-French three-factor model, the factor HML ('High Minus Low') is designed to capture the risk premi