FRM Part 1 Mock 1 | May 2023

Answers
FRM Part 1: VRM+FMP+Foundations+Quants

Q.1)B Q.2)C Q.3)B Q.4)C Q.5)B Q.6)C Q.7)B Q.8)C Q.9)C Q.10)B Q.11)A Q.12)C Q.13)A

Q.14)D Q.15)D Q.16)A Q.17)A Q.18)D Q.19)A Q.20)B Q.21)A Q.22)B Q.23)A Q.24)B Q.25)B

Q.26)D Q.27)C Q.28)C Q.29)A Q.30)C Q.31)A Q.32)A Q.33)A Q.34)C Q.35)A Q.36)A Q.37)C

Q.38)A Q.39)B Q.40)C Q.41)C Q.42)C Q.43)C Q.44)B Q.45)A Q.46)D Q.47)C Q.48)C Q.49)D

Q.50)B Q.51)C Q.52)A Q.53)B Q.54)B Q.55)B Q.56)C Q.57)B Q.58)B Q.59)A Q.60)D Q.61)D

Q.62)D Q.63)A Q.64)C Q.65)A Q.66)D Q.67)A Q.68)C Q.69)C Q.70)C Q.71)C Q.72)B Q.73)B

Q.74)A Q.75)D Q.76)C Q.77)A Q.78)B Q.79)A Q.80)A Q.81)B Q.82)A Q.83)A Q.84)D Q.85)A

Q.86)C Q.87)C Q.88)C Q.89)D Q.90)C Q.91)B Q.92)A Q.93)B Q.94)B Q.95)A Q.96)A Q.97)A

Q.98)B Q.99)D Q.100)D

FRM Part 1 Mock 1 | May 2023

Explanations
FRM Part 1: VRM+FMP+Foundations+Quants
Q.1) Explanation:
Answer is: B

Page 1
Q.2) Explanation:
Answer is: C

Q.3) Explanation:
Answer is: B

Page 2
Q.4) Explanation:
Answer is: C

Q.5) Explanation:
Answer is: B

Q.6) Explanation:
Answer is: C

Q.7) Explanation:
Page 3
Answer is: B

Q.8) Explanation:
Answer is: C

Q.9) Explanation:
Answer is: C

Q.10) Explanation:
Answer is: B

Q.11) Explanation:
Answer is: A

Page 4
Q.12) Explanation:
Answer is: C

Q.13) Explanation:
Answer is: A

Q.14) Explanation:
Answer is: D

Page 5
Q.15) Explanation:
Answer is: D

Page 6
Q.16) Explanation:
Answer is: A

Q.17) Explanation:
Answer is: A

Q.18) Explanation:
Answer is: D

Page 7
Q.19) Explanation:
Answer is: A

Q.20) Explanation:
Answer is: B

Page 8
Q.21) Explanation:
Answer is: A
Zero-coupon bonds are bonds that do not carry coupons. Zero coupons bonds trade at a discount to face value,
the discount rates used are the spot rates

Q.22) Explanation:
Answer is: B

Q.23) Explanation:
Answer is: A

Page 9
Q.24) Explanation:
Answer is: B

Q.25) Explanation:
Answer is: B

Page 10
Q.26) Explanation:
Answer is: D

Q.27) Explanation:
Answer is: C

Q.28) Explanation:
Answer is: C

Page 11
Q.29) Explanation:
Answer is: A

Q.30) Explanation:
Answer is: C

Page 12
Q.31) Explanation:
Answer is: A

Q.32) Explanation:
Answer is: A

Page 13
Q.33) Explanation:
Answer is: A

Q.34) Explanation:
Answer is: C

Page 14
Q.35) Explanation:
Answer is: A

Page 15
Q.36) Explanation:
Answer is: A

Q.37) Explanation:
Answer is: C
The gamma of an option is computed as follows:
Gamma = change in delta / change in the price of the underlying
= (0.7 − 0.6) / (110 − 100) = 0.01
Gamma is positive for long call & put position & negative for short call & put position.

Q.38) Explanation:
Answer is: A

Q.39) Explanation:
Answer is: B

Page 16
Year end fund value = $6520 million
Management fee = 2% * 6520 = $130.4 million
Incentive fee = (6520 - 5500 – 130.4) * 20% = $177.9 million
Investor's net return = (6520 - 5500 – 130.4 – 177.9)/5500 = 71.17/550 = 12.94%

Q.40) Explanation:
Answer is: C
Price limits are the maximum price movement/limit set by exchanges. If the intraday increase in the price of the
futures contract is equal to the predefined price limit, the contract is said to be limit up, whereas, if the intraday
decrease in the price of the futures contract is equal to the predefined price limit, the contract is said to be limit
down. Since the newspaper reads that the price of the contract closed limit down (price decreased by Rs. 6) at Rs.
146, the preceding day price is:
Limit down close to current day = Closing price of the preceding day – Price limit
The closing price of the preceding day = Rs. 146 + Rs. 6 = Rs. 152

Q.41) Explanation:
Answer is: C

Q.42) Explanation:
Answer is: C

Page 17
Q.43) Explanation:
Answer is: C
Generally
(1+ nominal rate)/(1+inflation) -1 = Real rate
Real interest rate = 1.15/1.04 - 1 = 10.5%

Q.44) Explanation:
Answer is: B

Q.45) Explanation:
Answer is: A

Q.46) Explanation:
Answer is: D

Page 18
Q.47) Explanation:
Answer is: C

Q.48) Explanation:
Answer is: C

Q.49) Explanation:
Answer is: D

Page 19
Q.50) Explanation:
Answer is: B

Q.51) Explanation:
Answer is: C
Compound annual growth rate (CAGR) = (Ending value/Beginning value)1/n= (100,847/77,428)1/5 - 1 = 5.4%

Q.52) Explanation:
Answer is: A
Macaulay Duration = 1*(7.4/61.8) + 2*(9.8/61.8) + 3*(44.6/61.8) = 2.60 years
Modified Duration = Macaulay Duration / (1 + YTM) = 2.60 / 1.06 = 2.45 years

Q.53) Explanation:
Answer is: B

Q.54) Explanation:
Answer is: B

Q.55) Explanation:
Page 20
Answer is: B

Q.56) Explanation:
Answer is: C

Q.57) Explanation:
Answer is: B
The cash price of the bill can be calculated with the following formula:
Discount = (No. of days to maturity / 360 days) * Quoted price
Discount = (164/360) * 9 = $4.1
Cash price = Face Value – Discount = $95.9

Q.58) Explanation:
Answer is: B

Page 21
Q.59) Explanation:
Answer is: A

Q.60) Explanation:
Answer is: D
The value of the fixed-rate component of the swap is ($50 × 1.065)e(−0.0575) = $50.27M.
The value of the floating-rate component of the swap is its par value of $50M since we are currently at an annual
settlement date.
Hence, the value of the swap to this counterparty is approximately $50M − $50.27M = −$270,000.

Q.61) Explanation:
Answer is: D
Calculating the bank's net Euro exposure:
(EUR assets − EUR liabilities) + (EUR bought − EUR sold) (1,367,450 − 1,500,325) + (580,368 − 250,200)
= EUR 197,293.

Q.62) Explanation:
Answer is: D

Page 22
Q.63) Explanation:
Answer is: A
The Treynor measure of a portfolio, Tp = {E(Rp ) - Rf}/βp
Hence: T1 = (14% - 6%)/1.15 = 0.07
T2 = (16% - 6%)/1.0 = 0.1
T3 = (20% - 6%)/1.25 = 0.112
Treynor ratio considers only the Systematic risk portfolio & assumes that Idiosyncratic risk of portfolio is
diversified away.
So Treynor ratio is suitable for portfolios that are well diversified.

Q.64) Explanation:
Answer is: C

Q.65) Explanation:
Answer is: A
Sortino ratio = (Average portfolio return - Minimum acceptable return)/Square root of mean squared deviation
= (0.0519 - 0.04)/√0.0017569= 0.2840

Q.66) Explanation:
Answer is: D

Page 23
Q.67) Explanation:
Answer is: A

Q.68) Explanation:
Answer is: C

Q.69) Explanation:
Answer is: C
Since the two events are mutually exclusive, the return cannot be below -5% or above 10% at the same time.
Therefore, the answer is simply 18% + 22% = 40%.

Q.70) Explanation:
Answer is: C

Page 24
Q.71) Explanation:
Answer is: C

Q.72) Explanation:
Answer is: B

Page 25
Q.73) Explanation:
Answer is: B

Q.74) Explanation:
Answer is: A

Page 26
Q.75) Explanation:
Answer is: D

Q.76) Explanation:
Answer is: C
Since the government has set a floor of 70 (a or the lower boundary) and the ceiling of 75(b or the upper
boundary) the range of dollar is 75 – 70 = 5
The possible outcomes (prices) of gold that fall below $72 is 72 – 70 = 2
Therefore, the probability that the prices of dollar will be set under 70 is: (X - a)/(b - a) = (72 - 70)/(75 - 70) = 0.4.

Q.77) Explanation:
Answer is: A

Page 27
Q.78) Explanation:
Answer is: B

Q.79) Explanation:
Answer is: A

Page 28
Q.80) Explanation:
Answer is: A
We know that:

Page 29
Q.81) Explanation:
Answer is: B

Page 30
Q.82) Explanation:
Answer is: A

Q.83) Explanation:
Answer is: A

Page 31
Page 32
Q.84) Explanation:
Answer is: D

Page 33
Q.85) Explanation:
Answer is: A

Q.86) Explanation:
Answer is: C

Q.87) Explanation:
Answer is: C
TSS = 825 + 625 = 1450
The higher the explained sum of square the better it is and the lower the residual sum of square, the better it is.

Q.88) Explanation:
Answer is: C

Page 34
Q.89) Explanation:
Answer is: D

Page 35
Q.90) Explanation:
Answer is: C

Q.91) Explanation:
Answer is: B

Page 36
Q.92) Explanation:
Answer is: A

Page 37
Q.93) Explanation:
Answer is: B

Q.94) Explanation:
Answer is: B

Q.95) Explanation:

Page 38
Answer is: A

Q.96) Explanation:
Answer is: A

Q.97) Explanation:
Answer is: A

Q.98) Explanation:
Answer is: B

Page 39
Q.99) Explanation:
Answer is: D

Q.100) Explanation:
Answer is: D

Page 40
Page 41