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# Exam FeedbackFRM Part 1 (May 2014) Exam Feedback

#### amresh

##### Member
Subscriber
can anyone confirm the answer for following 2 ques
1. prob ques.. the one at beg.. saying joint prob of a and b is 5 percent.. and conditional prob of b on A being 0.5. prob of neither happening ..
i selected 85 % .. as A independent prob wld be 10% i.e. 0.5/ 0.05 and neither a and b= 1- 0.05-.10 = .85 ..
2. the total number of payments on tht ISDA confirmation stuff.. with qrtly floating payment and fixed payment.. options were 5, 14, 21 .. i selected 14 .. dunno if its right or wrng
can anyone pls confirm

#### amresh

##### Member
Subscriber
1. Yes I got 0.85% for that one as well. I used different method to derive it..tree method as I learn it in my uni.
2. I am not sure about this question as well. neva seen it in the reading..the length of the swap is 2 years with quarterly payment. so I choose 7 since the start date of the fixed leg payment seems to be off a little bit from the floating leg payment but its just a guess...
Well they had given payment start date as well as end date , which were exactly 2 years away from each other .. Which makes 9 quarterly payments and 5 half yearly payments; sum comes out to be 14...

#### an12

##### New Member
evn i did the same calculation lik u amresh.. i just want results to be out asap
Well they had given payment start date as well as end date , which were exactly 2 years away from each other .. Which makes 9 quarterly payments and 5 half yearly payments; sum comes out to be 14...

#### amresh

##### Member
Subscriber
evn i did the same calculation lik u amresh.. i just want results to be out ]
That's something garp won't do soon.. And mostly am not optimistic about my chances as I felt that the biggest mistake I did was, I took things too seriously. prepared hard and alternate hypothesis is "I couldn't deliver". Will have to wait for test-statistic to be provided by garp.

#### hoang.vu90

##### New Member
Well they had given payment start date as well as end date , which were exactly 2 years away from each other .. Which makes 9 quarterly payments and 5 half yearly payments; sum comes out to be 14...
Can you explain why it is 9 quarterly payment and 5 semiannual payment when the contract is only 2 years ? which means only 8 quarters in total and the payment is netted between 2 counterparties in each payment no ?

##### Member
there was 1Q wrt to indentures..I picked 1st answer: acts in a fiduciary capacity. can anyone confirm?

##### Member
btw - the forward rate question had answers in EUR/USD ...some of you did convert although I dont see why this is needed here. the foreign currency from this perspective is the USD..an views?

#### plulutes

##### New Member
there was 1Q wrt to indentures..I picked 1st answer: acts in a fiduciary capacity. can anyone confirm?

Ya, I answered "fiduciary" as well.

#### amresh

##### Member
Subscriber
Can you explain why it is 9 quarterly payment and 5 semiannual payment when the contract is only 2 years ? which means only 8 quarters in total and the payment is netted between 2 counterparties in each payment no ?
I think contract period was more than two years..
Suppose the first payment date was on 1st march 2014 and last payment was on 1st march 2016. Even with netting minimum 9 payments had to be there as date of Floating payment was semiannual and fixed was quarterly. Which was not there in any of the options, so I went with 14, I.e. Without netting.

#### Meredius

##### New Member
Anyone else surprised there were 3 quantitative questions on the binomial but only one qualitative question on BSM?
Also there were 3 delta hedging questions.
And only one cost-of-carry question.

I like the baseball analogy and would agree on a lot of "twisting around". Although with this much material, I wouldn't be surprised if the FRM goes to a 3 exam format at some point in the future since you can't possibly test everything and there seems to be bias towards certain things - but then why include the rest? Then again the real world is twisted/complex and for the FRM to gain respect and recognition in an ever-increasing world market it can't be "easy"; especially with the monetary values and risk that needs to be managed on such a scale.

Or maybe I'm overthinking.

#### an12

##### New Member
as per my understanding correct answer was either tht finacnial ratio monitoring or b/s monitoring .. i choose the later though as it covers everythng , as trustee acts in fudiciary capacity for bondholders and not issuer
Ya, I answered "fiduciary" as well.

#### an12

##### New Member
btw - the forward rate question had answers in EUR/USD ...some of you did convert although I dont see why this is needed here. the foreign currency from this perspective is the USD..an views?
yes evn i treated usd as fc and eur as dc

#### Roshan Ramdas

##### Active Member
there was 1Q wrt to indentures..I picked 1st answer: acts in a fiduciary capacity. can anyone confirm?
Hello,
From what I recollect,...this fiduciary capacity point made mention of the trustee performing a fiduciary role on behalf of the "bond issuer" and this is incorrect. The trustee acts in a fiduciary capacity on behalf of the bond holder. There were 2 other options,...one around the trustee needing to examine financial ratios & the other around the trustee needing to monitor the balance sheet. I chose the balance sheet option,....but not sure if this is right as the Corporate Bond chapter does not call out reviewing balance sheets as a mandatory responsibility......but this came across as the only apt option from the rest of the choices to me.

#### Roshan Ramdas

##### Active Member
as per my understanding correct answer was either tht finacnial ratio monitoring or b/s monitoring .. i choose the later though as it covers everythng , as trustee acts in fudiciary capacity for bondholders and not issuer
Same here,...rejected the fiduciary answer & went for the balance sheet.

#### prK

##### New Member
Hello,
From what I recollect,...this fiduciary capacity point made mention of the trustee performing a fiduciary role on behalf of the "bond issuer" and this is incorrect. The trustee acts in a fiduciary capacity on behalf of the bond holder. There were 2 other options,...one around the trustee needing to examine financial ratios & the other around the trustee needing to monitor the balance sheet. I chose the balance sheet option,....but not sure if this is right as the Corporate Bond chapter does not call out reviewing balance sheets as a mandatory responsibility......but this came across as the only apt option from the rest of the choices to me.
Investopedia says this "A financial institution with trust powers, such as a commercial bank or trust company, that is given fiduciary powers by a bond issuer to enforce the terms of a bond indenture". Enforcing financial covenants are not mandatory functions of Trust.

#### Prince31

##### New Member
I think the answer to the probability question was 0.80. (Correct me please if I am wrong) Steps:
P(B/A) = P (A and B) / P(A) => P(A) = 0.10=P(B) (Question says P(A)=P(B) )
P (A or B) = P(A)+P(B)-P(A and B) => P (A or B)= 0.1+0.1-0.05=0.15
Required Probability = 1 - [P (A and B)+P (A or B)] => 1-0.15-0.05=0.80
I marked 0.75 though. Guess messed up in calculation somewhere.

#### amresh

##### Member
Subscriber
I think the answer to the probability question was 0.80. (Correct me please if I am wrong) Steps:
P(B/A) = P (A and B) / P(A) => P(A) = 0.10=P(B) (Question says P(A)=P(B) )
P (A or B) = P(A)+P(B)-P(A and B) => P (A or B)= 0.1+0.1-0.05=0.15
Required Probability = 1 - [P (A and B)+P (A or B)] => 1-0.15-0.05=0.80
I marked 0.75 though. Guess messed up in calculation somewhere.

I doubt, if question says P(A) = P(B)... if it did, then i didn't read properly that part.

#### an12

##### New Member
I think the answer to the probability question was 0.80. (Correct me please if I am wrong) Steps:
P(B/A) = P (A and B) / P(A) => P(A) = 0.10=P(B) (Question says P(A)=P(B) )
P (A or B) = P(A)+P(B)-P(A and B) => P (A or B)= 0.1+0.1-0.05=0.15
Required Probability = 1 - [P (A and B)+P (A or B)] => 1-0.15-0.05=0.80
I marked 0.75 though. Guess messed up in calculation somewhere.
sry but i dont recollect where in the ques was it written P(A)= P(B).. it was written rthr P(B) happening is 0.5 if A happens

#### plulutes

##### New Member
Investopedia says this "A financial institution with trust powers, such as a commercial bank or trust company, that is given fiduciary powers by a bond issuer to enforce the terms of a bond indenture". Enforcing financial covenants are not mandatory functions of Trust.

Agreed. Preparing Financials would be the responsibilities of Corporate officers, monitoring Financials would be done by analysts and potential bond holders due diligence, but trustees have fiduciary responsibility to the issuer to keep them in compliance with the indenture. Good example of GARP confusing a pretty simple question though.

#### Prince31

##### New Member
I doubt, if question says P(A) = P(B)... if it did, then i didn't read properly that part.
I remember faintly the question read " Both the bonds are equally probable to default".
But anyways......either ways 0.75 is not correct, which was my answer.

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