FRM Part 2 Practice Question Bank by AnalystPrep - Questions

What Makes AnalystPrep’s Question Bank Unique?

Our question bank has been developed by certified CFA charterholders with first-hand experience of the exam. We adopt the exact question structure as the actual exam.Our question bank is divided into specific topics to help you attain an all-round understanding of the curriculum. Every question is accompanied by a detailed solution.

Preparing for the CFA® Program exam also means knowing what to expect during the actual test and familiarizing yourself with the types of questions you’re likely to encounter. At AnalystPrep, we adopt the exact question structure as the actual exam. Each item consists of a stem (question, statement, and/or table) and three distracters – A, B, and C. The distracters agree grammatically with the stem. Moreover, each item is linked to one or more Learning Outcome Statements (LOSs).

Our question bank is divided into specific topics to help you attain an all-round understanding of the curriculum. Every question is accompanied by a detailed solution. In the event that you’d like some clarification on a specific concept, our instructors are reachable round the clock.

All our practice questions are adjusted regularly over time to be consistent with the current CFA® Program curriculum and difficulty level. Join the 20,000 candidates who register yearly for our free resources available only on our platform.

Performance Tracking Lets you Find your Strengths and Weaknesses

The Level I CFA exam consists of 10 topics covering a broad range of skills in a large volume of material. Testing your knowledge in each specific area by using the practice questions helps you understand where your strengths and weaknesses are. You can track your performance over time and monitor your progress with our FREE performance tracking tool.

Performance tracking is part of our complete set of analytics tools that gives you invaluable insights into your performance, including the ability to compare your result with more than 20,000 users worldwide. Adjust your study plan according to the given results and improve your performance by revising the topics that you need to master. Efficient studying begins with knowing which topics you need to put more effort into so as to maximize your chances of passing.

Question 1

Estimating Market Risk Measures

Assuming that the P/L over a specified period is normally distributed and has a mean of 14.1 and a standard deviation of 28.2. What is the 95% VaR and the corresponding 99% VaR?

A) The 95% VaR is 32.289 and the 99% VaR is 51.4932

B) The 95% VaR is 36.495 and the 99% VaR is 51.556

C) The 95% VaR is 55.236 and the 99% VaR is 36.49551

D) The 95% VaR is 36.225 and the 99% VaR is 41.586

Question 2

The Art of Term Structure Models: Volatility and Distribution

James Greenberg, an analyst at HSBC, is employing the Cox-Ingersoll-Ross (CIR) model for the short-term rate process.

His assumptions include:

The time-step is monthly, dt = 1/12, today’s initial rate, r(0) = 2.11%, the annual basis point volatility, sigma = 3.17%, the long-run rate, theta = 7.64%, the strength of reversion, k = 0.57.

For the first month, dw = 0.160. What is the short-rate in the first month under this CIR process, r(1/12)?

A) -3.006%

B) -1.336%

C) 2.446%

D) 3.006%

Question 3

Volatility Smiles

Suppose that a small-cap stock is priced at $0.6560. Suppose further that the European call and put options computed by Black-Scholes-Merton model are $0.0249 and $0.0501 respectively. Compute the market price of a FEB $0.75 call option if the market price of a FEB $0.75 put option is $0.0317.

A) $0.0065

B) $0.0025

C) $0.0337

D) $0.0654

Question 4

Portfolio Credit Risk

A $1 million portfolio of credits is divided into 100 credits with each credit having default probability represented by π. The default correlation is zero, and each credit is equally weighed. If π = 0.03 and the 95th percentile of the number of defaults is given as 4, calculate the Credit VaR.

A) $0.01 million

B) $0.004 million

C) $0.09 million

D) $0.001 million

Question 5

Credit Risk Measurement and Management

Raul Gaucho Trading is trading firm from Brazil that needs to have a very quick idea on a swap’s Bilateral Credit Value Adjustment (BCVA).The firm discovered that the expected positive exposure (EPE) for a trade of this type is 13.6% with an expected negative exposure of 0.09. The counterparty credit spread is found out to be around 267 bps and the credit spread of the trader’s own institution is 191 basis points per annum. Which of the following is nearest to an estimate of the BCVA?

A) -32.268 bps

B) -69.326 bps

C) -21.338 bps

D) 19.122 bps

Question 6

Risk Capital Attribution and Risk-Adjusted Performance Measurement

Supposing we are given the following information for a loan:

  • $89.5 million is the expected revenue
  • $8.89 million is the operating cost
  • $50.98 million is the tax expense
  • $10 million is the expected loss
  • $24.01 million is the return on risk capital
  • $69.5 million is the economic capital

What is the RAROC for the loan?

A) 0.7867

B) 0.4537

C) 0.6279

D) 0.8794

Question 7

Monitoring Liquidity

A liquidity division in XYZ bank operates a buy/sell back operation. Assume that after 3 months (0.25 years), the bank buys a bond worth 200,000 with an interest rate of 10% and sells it back after 6 months at the forward price. Assume that the purchase price is 99.50. Calculate the amount the bank pays at the start of the contract.

A) 204,000

B) 309,400

C) 403,600

D) 508,300

Question 8

Alpha (and the Low-Risk Anomaly)

You have been given the following information for a portfolio:

Portfolio return 10%
Beta 1.2
Standard deviation of the portfolio 5%
Benchmark return 8%
Tracking error 10%
Risk-free rate 3%

Calculate the Sharpe and the information ratios for the portfolio.

A) Sharpe ratio: 1.4; Information ratio: 0.2

B) Sharpe ratio: 1.4; Information ratio: 0.7

C) Sharpe ratio: 0.4; Information ratio: 0.2

D) Sharpe ratio: 0.4; Information ratio: 0.7

Question 9

Risk Monitoring and Performance Measurement

A fund manager is concerned about his portfolio’s liquidity profile. He does not wish to exceed more than 15 percent of the daily volume in any given security holding. The daily volume of the security is 100,000 while the number of shares held by the manager is 10,000. Which of the following is closest to the liquidity duration of the security?

A) 0.67

B) 0.015

C) 0.15

D) 0.1


Request for Callback

Thank you ! We will get to you soon.

Couldn't submit your request.