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We hope that everything went well for all of you who took the FRM Part 1 Exam today! We would really like to hear your feedback! How did it go? Did you encounter unexpected questions? Let us know how it went! 
Exam Feedback FRM Part 1 (November 2014) Exam Feedback
- Thread starter Nicole Seaman
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- I thought it was a fair exam, leaning towards a degree of difficulty higher than I expected. The reason being, I memorized a ton of formulas that were of no use considering there were more qualitative type questions. In retrospect I would've spent more time reviewing concepts. Also, bringing a watch is necessary as there was no clock in the exam room in NYC.
If anyone is nervous about their performance, know that you are definitely not the only person that feels that way. We're all better off for taking the exam. Best wishes!
Good morning,
I wrote my exam yesterday in Amsterdam and overall i am rather happy with the exam and my preparation. The level of difficulty was less than anticipated (rather like a mock exam of the year 2010-2013 + the addition of limited amount of tougher questions). After 30 questions I felt that I knew 80% of the questions at least - unfortunatelly this % dropped somewhat. In the end I had 10 questions I did not know, 10 sophisticated guesses between 2 choices, 10 qualitative answers I found made sense but i know that they are not a sure thing and 2,3 calculations of formulas I know very well but that somehow did not fit 100%. With the help of BT material and GARP mock exams I felt that I was very well prepared and there were so many questions that I could tackle with a lot of routine. This made the whole exam really fun to be honest.
That being said of course i have now idea if I passed or not. If not I will be a little puzzled though because my preparation was the best I could deliver and the exam was the fairest I could have asked for.
I had some difficulties with the binominal steps:
1. Last question (2 step binominal) was not so though but i was unsure about the dividend (add it to -r when discounting, right?) - my result didnt fit so I guessed between C/D (took D i believe)
2. I believe the one step one only gave step up/down but not all the info required to calculate the binominal step. Left it of the end and didnt have time to really work on it. Felt I had to find a way how to directly get the option price change in relation to up/down step change but again ... no time
Difficult for me:
1. Highest cost of delta hedge for a short position: I timeboxed my activities and had to guess. The cost to hedge delta should be indifferent to if you hedge 5 of -5 so disregarded the short position. I compared the two calls and identified that the one where S0 and K are different this will have a higher d1 and therefore N(d1). It was then difficult for me to assess if any of the puts can have a higher absolute value of (N(d1)-1) so I just picked my first choice with the call.
2. APT: there was a questions with two b factors (gdp, interest rates). One had to decide which of the four choices had a positive outcome. Would be nice to know how people solved this conceptually.
Would be great if anybody knew these answers.
Greetings,
Tim
I wrote my exam yesterday in Amsterdam and overall i am rather happy with the exam and my preparation. The level of difficulty was less than anticipated (rather like a mock exam of the year 2010-2013 + the addition of limited amount of tougher questions). After 30 questions I felt that I knew 80% of the questions at least - unfortunatelly this % dropped somewhat. In the end I had 10 questions I did not know, 10 sophisticated guesses between 2 choices, 10 qualitative answers I found made sense but i know that they are not a sure thing and 2,3 calculations of formulas I know very well but that somehow did not fit 100%. With the help of BT material and GARP mock exams I felt that I was very well prepared and there were so many questions that I could tackle with a lot of routine. This made the whole exam really fun to be honest.
That being said of course i have now idea if I passed or not. If not I will be a little puzzled though because my preparation was the best I could deliver and the exam was the fairest I could have asked for.
I had some difficulties with the binominal steps:
1. Last question (2 step binominal) was not so though but i was unsure about the dividend (add it to -r when discounting, right?) - my result didnt fit so I guessed between C/D (took D i believe)
2. I believe the one step one only gave step up/down but not all the info required to calculate the binominal step. Left it of the end and didnt have time to really work on it. Felt I had to find a way how to directly get the option price change in relation to up/down step change but again ... no time
Difficult for me:
1. Highest cost of delta hedge for a short position: I timeboxed my activities and had to guess. The cost to hedge delta should be indifferent to if you hedge 5 of -5 so disregarded the short position. I compared the two calls and identified that the one where S0 and K are different this will have a higher d1 and therefore N(d1). It was then difficult for me to assess if any of the puts can have a higher absolute value of (N(d1)-1) so I just picked my first choice with the call.
2. APT: there was a questions with two b factors (gdp, interest rates). One had to decide which of the four choices had a positive outcome. Would be nice to know how people solved this conceptually.
Would be great if anybody knew these answers.
Greetings,
Tim
From what I remember, for the APT the risk free interest rate =4.5%, so I took 4.5% + BetaGDP (.... - given base value1) +BetaINT (... - given base value2)
I went for C for that question because it was the only 1 that gave me a positive outcome. Yet I wonder if my answer C is the same C on your exam papers, since the last question you mentioned about 2-step binomial is not my last.
For the question on highest cost to hedge, I picked Out-of-Money Call since its delta is most close to 0, the others were ITM call with delta close to 1, ATM calls/puts have deltas close to 0.5. The answers did not include what positions are taken with these options right?
Do you remember for answers for
- the question with answers Convertible/Called/Make-whole/Sinking fund, I randomly picked Convertible.
- the one about dealing with futures and options, hedge ratio of 0.9
- 6-month, 1 year, 1.5 year swap rates and projected forward rates?
I went for C for that question because it was the only 1 that gave me a positive outcome. Yet I wonder if my answer C is the same C on your exam papers, since the last question you mentioned about 2-step binomial is not my last.
For the question on highest cost to hedge, I picked Out-of-Money Call since its delta is most close to 0, the others were ITM call with delta close to 1, ATM calls/puts have deltas close to 0.5. The answers did not include what positions are taken with these options right?
Do you remember for answers for
- the question with answers Convertible/Called/Make-whole/Sinking fund, I randomly picked Convertible.
- the one about dealing with futures and options, hedge ratio of 0.9
- 6-month, 1 year, 1.5 year swap rates and projected forward rates?
Hi Lucas,
- I took the same approach and result for the APT question (happy!)
- highest cost to hedge: not sure if I remember the question precisely - was there a portfolio of options that needed to be hedged and you had to decided what kind of options are in the portfolio (so the the most expensive would be the high delta option) - OR did one have to choose options for hedging so then the most expensive is the lowest delta like you state
- convertible/called/make whole/sinking: i randomly picked one due to lack of time but also I dont know the background thoroughly
- futures and options: i think spot was 2 and raised to 2,20 while the call option was 2,15 so i answered that i make use of the call option (I was a little confused about the answer that we dont have enough information to assess the situation)
- 6/12/18 swap/forward: also this was among my guesses: to be honest the only concept that came into my mind is that if forward rates are higher than swap rates then swaps should decrease in value and vice versa. Even if this is the right concept the questions was confusing to me (observed swap rates, implied swap rates, expected futures rates) and did not know how to evaluate the first year (equal rates). I think I picked a single point of time only (1 y if I am not mistaken)
Which answers did you give for future/option and swap/future?
Greetings,
Tim
- I took the same approach and result for the APT question (happy!)
- highest cost to hedge: not sure if I remember the question precisely - was there a portfolio of options that needed to be hedged and you had to decided what kind of options are in the portfolio (so the the most expensive would be the high delta option) - OR did one have to choose options for hedging so then the most expensive is the lowest delta like you state
- convertible/called/make whole/sinking: i randomly picked one due to lack of time but also I dont know the background thoroughly
- futures and options: i think spot was 2 and raised to 2,20 while the call option was 2,15 so i answered that i make use of the call option (I was a little confused about the answer that we dont have enough information to assess the situation)
- 6/12/18 swap/forward: also this was among my guesses: to be honest the only concept that came into my mind is that if forward rates are higher than swap rates then swaps should decrease in value and vice versa. Even if this is the right concept the questions was confusing to me (observed swap rates, implied swap rates, expected futures rates) and did not know how to evaluate the first year (equal rates). I think I picked a single point of time only (1 y if I am not mistaken)
Which answers did you give for future/option and swap/future?
Greetings,
Tim
There was a question about bond indenture of a company that didnt adhere to the terms of d contract (what would you consider in the indenture if you had to invest in the stock of the company. Options were poison call clause, statement of networth, reverse butterfly spread
etc)
Another question on rank countries from highest inequality to lowest based on gini coefficients of countries (answer was from highest coefficient to lowest)
Another question on cheapest to deliver bond. I think my answer was either bond A or B
There was a question on profit of butterfly spread. I didnt get an answer for this (profit shud be (strike price of call shorted - lowest stike price of the long call)- net premium. Arrived at 9 but didnt see this among the options
For quantitative, we had about 5 questions or so on regression.
Another question on assumptions of APT.
Also we had a question about mean and variance of sample mean. If the sample size increases, what happens to the variance or mean of the average. The answer to this question i think should be the mean converges to zero cos there was no option about variance converging to 1 (cant even remember what i picked there cos i saw this about 5 mins to the end of the exam).
The valuation seemed to focus more on rates. There was a question on the best option to take if you had a fixed rate and floating rate bond but then notice interest on the rates increased
a question on rates increasing for a Japenese craftsman or so . I picked d option futures price will increase if rates increased and thus will favour the long position
Did any of the questions appear in your exams booklet? My take is everyone wrote the same questions but order was different
etc)
Another question on rank countries from highest inequality to lowest based on gini coefficients of countries (answer was from highest coefficient to lowest)
Another question on cheapest to deliver bond. I think my answer was either bond A or B
There was a question on profit of butterfly spread. I didnt get an answer for this (profit shud be (strike price of call shorted - lowest stike price of the long call)- net premium. Arrived at 9 but didnt see this among the options
For quantitative, we had about 5 questions or so on regression.
Another question on assumptions of APT.
Also we had a question about mean and variance of sample mean. If the sample size increases, what happens to the variance or mean of the average. The answer to this question i think should be the mean converges to zero cos there was no option about variance converging to 1 (cant even remember what i picked there cos i saw this about 5 mins to the end of the exam).
The valuation seemed to focus more on rates. There was a question on the best option to take if you had a fixed rate and floating rate bond but then notice interest on the rates increased
a question on rates increasing for a Japenese craftsman or so . I picked d option futures price will increase if rates increased and thus will favour the long position
Did any of the questions appear in your exams booklet? My take is everyone wrote the same questions but order was different
Hi Heidi,
no idea about the bond indenture - i guessed statement of net worth
ranking countries - I also used GINI reversed like you
profit of butterfly I had 4 - +15 from long call, -2*5 from 2 short calls, -1 initial cost - does this make sense?
Japanese future: wasnt this about underlying bonds? My reasoning was that if rates increase bond decrease so Futures decrease (in analogy of a prep exam I did lately) so I think I chose a short position
Floating/Fixed: interest rates changes have a higher impact on fixed rate where rates up means prices down and vice versa
I recall one more question what happens to a confidence interval when the sample size was increased (like from 250 to 1000 or so). I plugged in the values and I believe i derived confidence interval will be half.
Greetings,
Tim
no idea about the bond indenture - i guessed statement of net worth
ranking countries - I also used GINI reversed like you
profit of butterfly I had 4 - +15 from long call, -2*5 from 2 short calls, -1 initial cost - does this make sense?
Japanese future: wasnt this about underlying bonds? My reasoning was that if rates increase bond decrease so Futures decrease (in analogy of a prep exam I did lately) so I think I chose a short position
Floating/Fixed: interest rates changes have a higher impact on fixed rate where rates up means prices down and vice versa
I recall one more question what happens to a confidence interval when the sample size was increased (like from 250 to 1000 or so). I plugged in the values and I believe i derived confidence interval will be half.
Greetings,
Tim
I thought the exam was a medium in terms of difficulty. Much more confusing questions than Schweser practice test, but overall manageable. All the questions you mention sound familiar to me so far. I was also quite lost about super specific questinos on bond specificalities, like the poison call.... There was also a question about high yield corporate debt, where I was choosing between extendible coupon and ... fell out of my memory. Questions are definitely in a different sequence, because when I looked at my neighbours answer pattern i was shocked to see how different it was. I was thinking either she totally failed, or I did. But apparently thats because of the mix up. On GDP and interest rates APT question, I also think I answered C, i just plugged in the given variables first to find the risk free and then I calculated for each option if the return was positive and it was only for C I think. A few more other questions that I remember are:
on Allied irish bank and Barings, what they had in common . the right answer was that they both hid their fraud by creating fictious trades.
then there was a question on the convexity adjustment between forwards and futures. I calculated the adjustement right, but instead of choosing subtracting it, i addded.. So that one I got wrong.
a swap between USD and GBP. I dindt have time to calculate it but picked -2.
Then a question about the long commodity holder can do upon maturity of the contract, i either put compromise on the delivery site with the short or check the quality of the commodity
Also there was a Bayes law example, where you had three scernarios for interest rates given the state of the economy ( as I remember it). I calculated it but my answer wasnt a choice so i picked 48%, the closest one
Overall I thought that there were more qualitative questions than expected, and if there were calculations they were quite lengthy.
on Allied irish bank and Barings, what they had in common . the right answer was that they both hid their fraud by creating fictious trades.
then there was a question on the convexity adjustment between forwards and futures. I calculated the adjustement right, but instead of choosing subtracting it, i addded.. So that one I got wrong.
a swap between USD and GBP. I dindt have time to calculate it but picked -2.
Then a question about the long commodity holder can do upon maturity of the contract, i either put compromise on the delivery site with the short or check the quality of the commodity
Also there was a Bayes law example, where you had three scernarios for interest rates given the state of the economy ( as I remember it). I calculated it but my answer wasnt a choice so i picked 48%, the closest one
Overall I thought that there were more qualitative questions than expected, and if there were calculations they were quite lengthy.
There was one question which i wasted a bit of time on. I think it was either the second or third question where you had to value a fx future. The agreement was to purchase £80,000 at fx rate was GBP/EUR 0.9, converting to Euros that is €88,889. However i was only seeing options including €100,000. Now i'm not sure whether i being stupid or whether they meant to write the rate as 0.8. Anybody else encounter this?
From what I remember, for the butterfly strategy, the answer should be 4: (105 - 90) - 2*(105-100) - 8 + 2*3.5 = 4
Also picked the net worth clause, and +2 for the EUR/CHF swap question.
I did not remember what exactly Gini coefficient is so I just chose largest to smallest. Gosh I did not expect so much qualitative questions. I spent so much time working on quant practice questions.
There was one question on currency forward. One party promised to buy 8 million for 0.9 each. Don't remember the question but the answers are like
1,000,000 - 8,000,000/Spot rate at maturity or 8,000,000/Spot rate at maturity - 1,000,000
What is your answer for this? I don't even understand the question.
Also picked the net worth clause, and +2 for the EUR/CHF swap question.
I did not remember what exactly Gini coefficient is so I just chose largest to smallest. Gosh I did not expect so much qualitative questions. I spent so much time working on quant practice questions.
There was one question on currency forward. One party promised to buy 8 million for 0.9 each. Don't remember the question but the answers are like
1,000,000 - 8,000,000/Spot rate at maturity or 8,000,000/Spot rate at maturity - 1,000,000
What is your answer for this? I don't even understand the question.
Hi lucas, see my post above. It also left me confused.
The question was about payoff. Among the answers there two max fanctions which are supposed to be relted to options. So I chose 8000000/Sr-1000000. As for bondholders, a chose net worth and Barings and Allied cases were related to fictious trades in my opinion.
The question was about payoff. Among the answers there two max fanctions which are supposed to be relted to options. So I chose 8000000/Sr-1000000. As for bondholders, a chose net worth and Barings and Allied cases were related to fictious trades in my opinion.
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