FRM Part 1 : Exam Done in Dubai 2011

Discussion in 'About FRM' started by Addy, Nov 19, 2011.

  1. LankyLint

    LankyLint Member

    Even with equal weights, if you use correlation = 0.05, the portfolio variance will be 27.38%

    Rounding that off, it is closer to 30% than any of the other answer choices. (I think)

    What were the other answer choices?
  2. LankyLint

    LankyLint Member

    The main issue is that the w1 * v1 + w2 * v2 cannot be subtracted from the portfolio variance to get 2 * w1 * w2 * cov (although mathematical rules will tell you otherwise)

    Or it could be that the question is wrong. And I seem to be in the same frame of mind as the person who created the question.
  3. Hend Abuenein

    Hend Abuenein Active Member

    I don't really remember. But One thing I remember very well as I searched for it in all numeric questions: there is no more "nearest to" in the tail of numeric questions> So if the answer is 0.273 there would be exactly that in the answers available, and it isn't the same as choosing 30%.

    Nevertheless, I did use nearest to methodology when cornered yet confident of my answers.
    Re: "Even with equal weights, if you use correlation = 0.05"...I don't understand why you interpreted equal weights as 0.5 correlation?

    I'm starting to feel bad about the exam now :(
  4. LankyLint

    LankyLint Member

    No.

    I mean to say that instead of finding the answer, you could use the choices to find the question.

    If you picked 0.05,

    You could then calculate portfolio variance using equal weights as,

    square(0.5) * 0.25 + square(0.5) * 0.04 + 2 * 0.05(chosen answer) * rootOf(0.25) * rootOf(0.04) * 0.5 * 0.5

    Which will come out to about 27.3% as I found earlier.
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  5. Meredius

    Meredius New Member

    1) I think he's right though. Using the weights for standar deviation came out to something like 4.58% and there was a 3.59% in the answers.. one higher around 3.78 ish and a couple lower ones but all in the 3% range... I also think one question asked for variance when answers were volatility.

    2) Whoa I'd be shocked if 55 / 100 gave a passing score! Then again it's all on the best 5 percent marks. I wonder if the FRM has increased because of complexity of the job requirements, because of industry (and university) focus (its a "hot job" right now) or because fo alot of professionals and CFA charterholders sitting in to specialise....? Even though the CFA seems a world apart to me in the aims when you take out the quant aspect - it's very financial accounting / portfolio focussed. Kind of like asking an MBA to do CDO structuring. Distant cousins. :)

    Then again my banking experience has been brokerage / commercial banking / mortgages... so quite different. One thing that's always hard to do is try to to relate to the exam and then job responsibilities - as I'm sure computer modeling programs like SAS help out a great deal with the math, it's important to know what the motor is doing so to speak. As an analogy, you have the same disparity in technology where programmers graduate with knowledge of the JAVA language but have no idea how the memory allocation or computer architecture works.

    My point is; anyone practicing in the field can maybe shed some light on risk management experience? David or anyone on these forums?(I know there are job descriptions on this site but maybe a few pointers or anecdotes?)

    Sacha
  6. ShaktiRathore

    ShaktiRathore Well-Known Member

    I would like to share some Qs that appeared in the FRM L1 exam.
    Q1. whats the probability of drawing high growth fund out of a given 2 growth funds among a set of funds. their ratios in total funds were given we needed to find the conditional probability of drawing from one growth fund. ans:.25 acc. to me
    Q2. one on binomial distribution as to we need to find some order of probabilities in terms of magnitudes.
    Q3. Two Qs on plots of variance Vs correlation was straight line Var prop. to correeation and the other one also on some sort of this kind of relation but volatility Vscorrelation
    Q4. Regression coefficinet of determination was an easy but invol. calculation
    Q5. plot of QQ plot is basically used to determine whether distbn is normal or not the graph suggested its normal
    Q6. One on trynor measure as how portfolio perf. is judged in terms of beta.
    Q7. one on geometric brownian motion to determine share price after first movement. was confused b/w two error coefficents given but went for e1
    Q8. international currency based on Interest rate parity gave ans. to second Q based on IRP eqation and guessed the first one which was to determine the exposure
    Q9. one on pvalue and level of significance. other options which discussed type i and type ii error were worong acc, to me
    Q10. one on ERM as how its implemented.
    Q11. one simple one on calculating volatility sigma given values of sigma1 and sigma2 and corr. weights and corr.
    Q12. One on lognormal distrbn which is used for asset pricing the option which i ticked correct.
    Q13. Determining ES based on Vars given above a confidence interval of 95.5% where i h=just took the AM of all the VARS above this CL
    Q14. one on subadditivity prop of VAR was a simple one as it just asked to find the property defn
    Q15. one on markowitz portfolio frontier where portfolios were given and find max return for std. deviation not exceeding 6% by combing all the three.mine ans came as 5.65%
    Q16. one on hedge effectiveness to determine the factor which led analyst to adjust to increased hedge effectivness.spot price movt. was my answer
    Q17 one was a simple calculation of beta
    Q18 whats the effect of increasing security returns Ri :determine some relation of tax factor
    Q19 one on determining credit spread cal it as ln(F/D) and then compare a set of funds based on it
    Q20 determine the rating downgrades which will led to most downward growth for two funds
    Q21 one on determining payoffs based on selling call option and buying put option of sort and cal. net payment out of it
    Q22 2Qs on put call parity taking dividends into acount were really involved and required some cals. was not sure of how to incorporate dividen into caln some guessing led me to answers
    Q23 binomial options pricing one was to price a put option and another one to calculate probability of upward or downward trned
    Q24 pricing of bond of face value 100 based on given coupan rates guessed it:)
    Q25 need to calculate ytm based on a set of forward rates also guessed it was highly calculative
    Q26 options values increases except one factor which is time to expiration
    Q27 one simple one asking as what is req for frm certification ans is simple pass exams and 2 yrs of work ex.
    Q28 one on Garp code of conduct as to determine wat is not under it i rem. i mite hv it rght
    Q29 one on wat would constitute constant payoff short call+ long put something like this
    Q30 one on what would cause forward price to diminsh ans: high convinience yield
    Q31 how futures contract are settled in exchange of physicals ans: both parties can negotiate as how to settle it both delivery and place o floc.
    Q32 one on intial margin and maintenace margin correct ans 5th day.
    Q33 futures markets are prefferred because except ans: customise the contracts
    Q34 some mean of losses were given and standard deviatione needed to find prob. of losses exceeding certain level of threshhold. use z tables
    Q35 Acc to EVT above a certain threshold the distrbn approaches mine ans: GPD
    Q36 find IR for some set of assets when one of the assets was removed. did after some cals
    Q37 Bankers trust case: marked both A&B as correct
    Q38 risk management increases value by red. financial distress as well as tax adjustments marked both as correct
    Q39 find the cheapest to deliver bond was an easy one as i practised it earlier
    Q40 find the futures contracts needed to hedge from adjustment of beta to new value(higher value)
    Q41 needed to find a fund out of a set of funds which has maximum performance. i used IR to asseess this
    Q42 find the most ineffective hedge combimations in bonds for intesrest protection i chose covertible bond and a non-convertible bond iguess i m rigt not sure though
    Q43 Find the Garch model easy one to predict
    Q44 one on delta neutral strategy and other on gamma neutral startegy of hedging guessed both of them:)
    Q45 one on exponential smooting was not sure on this one..cant remmeber
    Q46 find the bank capital reserve based on basic indicator approach guessed it:)
    Q47 find hedge ration based on DV01 given was not sure on this
    Q48 Expected loss calculation
    Q49 Economic capital is used to cover expected/unexpected losses?
    Q50 comparative advantage in using libor and fixed rate find the best one out which has it max.
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  7. LankyLint

    LankyLint Member

    Q27 one simple one asking as what is req for frm certification ans is simple pass exams and 2 yrs of work ex.

    I think this question was about when you are bound by the GARP rules of conduct? I don't remember a question asking when you get the certification.
  8. ebb

    ebb New Member

    There is probably more than one edition. Many of the questions you described did not appear in my exam.
  9. Hend Abuenein

    Hend Abuenein Active Member

    heheh
    There is only one edition of questions.
    This is how he understood the questions

    Example: as Lanky said there is no question about certification, but there was one about when are you bound by the code of conduct.
  10. LankyLint

    LankyLint Member

    He seems to have done okay but he did miss out on many questions. Thank you for the list of questions regardless!
  11. Meredius

    Meredius New Member

    "Q49 Economic capital is used to cover expected/unexpected losses?"

    This is in David's video.... *checking* Video T1. 4e slide 27. I think I marked yes by remembering the graph.

    Sacha
  12. LankyLint

    LankyLint Member

    I personally feel that economic capital is only used to cover unexpected loss and think I read it somewhere in the schweser book.

    Reason being that if you know that your debtor is going to default, you charge a higher interest rate to cover the expected loss. Whereas you don't expect 10-20 of these to default together which is unexpected loss. You don't need to hold capital to cover the expected loss because the interest rate compensates you for it.
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  13. Hend Abuenein

    Hend Abuenein Active Member

    I second that...same source
  14. @ lankylint thnx for ur estimate of the cut off
    @ others what do you think about the cut off ? any rough estimate about the magic number ??
  15. Hend Abuenein

    Hend Abuenein Active Member

    Give me it's input and I'll give you a good estimate...otherwise we're all wasting our time at it :confused:
  16. LankyLint

    LankyLint Member

    Prateek, a better way to look at it would be to compare your performance to others.

    Generally, you are safe if you know you performed better than at least 5 others people. (top quartile).

    I would think that around 50% should pass. So, you have to be in the top two quartiles.
  17. Inputs??
  18. Hend Abuenein

    Hend Abuenein Active Member

    That's exactly what I mean :) Nobody knows what it depends on, or how it's decided. No inputs to work with or analyze here. A paradox, if you ask me. GARP teaches us to be deeply analytical, but gives us very little to analyze about how it works with us.
  19. agreed but there would be a safe number right? just curious . I was sure even before cfa results were declared because i knew i would score more than 180 out of 240.

    anyways this time i feel i may end up on the borderline and hence a lil wrried. :p
  20. ste@ubp.ch

    ste@ubp.ch New Member

    I'd agree with the maths for the above, although I'd also say that the answers were not exact enough where 0.05 calculates to a SD of 27.3. Also I had difficult because I thought the information given was 0.3 Variation for the portfolio not the SD, although I think that's going down to a mild case of nt reading the question as no one else has sadi this
    Ali

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