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Week in Financial Education (May 17, 2021)

Welcome to another Week in Financial Education! This week saw some great questions and fascinating insights. I will just highlight the instructive example of a flawed solution in the 2021 practice paper (as usual, the impetus is candidates’ justifiable confusion). This one is tricky because the correct answer is coincident with two implicit assumptions, but the approach will break under other conditions! One thing we’ve always cared about here (at Bionic Turtle) is mastery of the fundamentals. We don’t just want you to pass the exam. We want you to take away a robust toolkit. Part of that toolkit is fluency in the fundamental building blocks of finance, including its vocabulary. What exactly is meant by an “interest rate factor” and what are the possible instances of such a factor? The question (below) that we analyzed refers to bond yield, spread, and the implied hazard rate. Yield and hazard rates do have specific definitions, but spread requires clarification. (As another example, the question ultimately asks for “risk-neutral” cumulative default probability; what step in the solution does this risk-neutral assumption enable?). I hope you appreciate that we support your aspirations as a Professional by seeking to assist in the clarifications that constitute a robust and coherent toolbox.

New Practice Questions

1. P1.T2.21.5 Monte Carlo simulation

2. P2.T9.21.5 Incremental versus component value at risk (VaR)

Two-asset portfolio model

Forum News

1. [Exam Feedback] We have some great feedback about the Part 2 FRM® exam that was administered over the weekend!

2. [P1.T1] punchi’s good idea for checking plausibility of a portfolio under CAPM

3. [P1.T1] Does the CML also map to systematic (beta) risk?

forum response

4. [P1.T2] Why log returns are stationary but lognormal prices are not

5. [P1.T3] The lease rate is a net convenience yield

6. [P1.T4] Gaussian copula lookup

7. [P2.T5] Dowd’s semiparametric methods

8. [P2.T6] Counterparty terms: market-to-market (MTM), credit exposure, future value, and potential future value

9. [P2.T6] Do credit spreads mean revert?

10. [P2.T6] GARP®’s flawed solution to its classic spread/hazard question

forum response

11. [P2.T6] Questions about collateralization (margin) calculations

12. [P2.T8] More on GARP’s repo question

13. [P2.T9] Grinold’s alpha as a product of skill, volatility, and expectation

14. [P2.T8] sohinichowdhury asked a fun question: what is the semi-annual dollar-weighted return (aka, IRR)?

forum response

Curated Links (items you might like)

1. Risk & Finance

FRED: Consumer price index for all urban consumers graph

2. Cyber

Colonial Pipeline map

3. Climate/ESG

4. Data etc.

ML guided pre-processing model

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I took the exam in Sydney and had a similar feeling about the exam being more qualitative (but no less rigorous). However, I felt I was better prepared thanks to the BT's relentless focus on throwing real life examples and methods.

Jagan G.

I subscribed to BT for my Part 1 FRM exam and just wanted to say thanks for the depth and breadth of the study materials and practice questions. I found out that I scored in the top quartile of every topic and I absolutely could not have done this without using BT - I spent many, many hours going over the practice questions and answers! I wanted to express my appreciation and gratitude to your team for your hard work in creating these materials. Thanks!

Shu C.

The BT scripts, practice questions, global topic drills and mock exams were a great help in understanding the concepts (which I could already apply on the job!) and where structured in such a manner that the breadth and depth where optimal for exam preparation - clearly the exam would have been a catastrophe without BT!

Ivan J.

Passed first time. Happy all the hard work paid off. BT was the right choice. Thanks David and Nicole for your work and commitment.

John D.

Passed! 1,4,1,2,1,4! Thank you David and Nicole for your efforts! Thank you BT! Couldn't have done it otherwise. I'm a mechanical engineer who had a career in petroleum services, then I decided to switch career to financial risk management. Passed part 1 from the first time with top quartiles and passed part 2 from the first time as well. All with BT! BT is always the recommendation I give to people aiming at the FRM designation! Thank you again!

Feras S.

Passed Part I and Part II first time - absolutely could not have done it without BT. Like a few others I didn't even both buying the GARP books for Part II and went solely with BT materials. Just read, answered questions, watched videos, read, more questions, and... more questions! All the practice question taking looked to pay off. Thanks again Bionic Turtle for a great curriculum. Keep up the fantastic work!

John D.

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