FRM一级练习题(1)

FRM一级练习题（1）

1、An investment manager is given the task of beating a benchmark. Hence the risk shoul d be measured in terms of

A. Loss relative to the initial investment

B. Loss relative to the expected portfolio value

C. Loss relative to the benchmark

D. Loss attributed to the benchmark

2、Based on the risk assessment of the CRO, Bank United's CEO decid ed to make a large investment in a levered portfolio of CDOs. The CRO had estimated that the portfolio had a 1% chance of l osing $1 billion or more over one year, a loss that would make the bank insolvent. At the end of the first year the portfolio has lost $2 billion and the bank was cl osed by regulator. Which of the foll owing statement is correct?

A. The outcome d emonstrates a risk management failure because the bank did not eliminate the possibility of financial distress.

B. The outcome demonstrates a risk management failure because the fact that an extremely unlikely outcome occurred means that the probability of the outcome was poorly estimated.

C. The outcome demonstrates a risk management failure because the CRO failed to go to regulators to stop the shutd own.

D. Based on the information provid ed, one cannot determine whether it was a risk management failure.

3、An analyst at CARM Research Inc. is projecting a return of 21% on Portfolio A. The market risk premium is 11%, the volatility of the market portfolio is 14%, and the risk-free rate is 4.5%. Portfolio A has a beta of 1.5. According to the capital asset pricing model which of the foll owing statements is true?

A. The expected return of Portfolio A is greater than the expected return of the market portfolio.

B. The expected return of Portfolio is less than the expected return of the market portfolio.

C. The return of Portfolio A has l ower volatility than the mark t portfolio.

D. The e peered return of Portfolio A is equal to the expected return of the market portfolio.

4、Suppose Portfolio A has an expected return of 8%, volatility of 20%, and beta of 0.5. Suppose the market has an expected return of 10% and volatility of 25%. Finally suppose the risk-free rate is 5%. What is Jensen’s Alpha for Portfolio A?

A. 10.0%

B. 1.0%

C. 0.5%

D. 15%

5、Which of the foll owing statement about the Sharpe ratio is false?

A. The Sharpe ratio consid ers both the systematic and unsystematic risk of a portfolio.

B. The Sharpe ratio is equal to the excess return of a portfolio over the risk-free rate divided by the total risk of the portfolio.

C. The Sharpe ratio cannot be used to evaluate relative performance of undiversified portfolios.

D. The Sharpe ratio is derived from the capital market line.

6、A portfolio manager returns 10% with a volatility of 20%. The benchmark returns 8% with risk of 4%. The correlation between the two is 0.98. The risk-free rate is 3%. Which of the foll owing statement is correct?

A. The portfolio has higher SR than the benchmark.

B. The portfolio has negative IR.

C. The IR is 0.35.

D. The IR is 0.29.

7、In perfect markets risk management expenditures aimed at reducing a firm' diversifiable risk serve to

A. Make the firm more attractive to sharehol ders as long as costs of risk management are reasonable.

B. Increase the firm's value by lowering its cost of equity.

C. Decrease the firm's value whenever the costs o f such risk management are positive.

D. Has no impact on firm value.

8、By reducing the risk of financial distress and bankruptcy, a firm's use of d erivatives contracts to hedge it cash fl ow uncertainty will

A. Lower its value due to the transaction costs of derivative trading.

B. Enhance its value since investors cannot hedge such risks by themselves.

C. Have no impact on its value as investor costless diversify this risk.

D. Have no impact as only systematic risks can be hedged with derivatives.

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