Test your FRM Part 1 knowledge with 25 original exam-style questions covering all four GARP domains. Every question includes a detailed explanation. No signup required.
Calculation • Conceptual • Tricky Wording — the three styles you'll see on exam day
A firm's board of directors delegates day-to-day risk oversight to a Chief Risk Officer (CRO) who reports directly to the CEO. According to best practices in risk governance, what is the primary weakness of this reporting structure?
A portfolio manager has a portfolio with an expected return of 12%, a standard deviation of 18%, and a beta of 1.3. The risk-free rate is 3% and the market return is 10%. What is the portfolio's Jensen's alpha?
An enterprise risk management (ERM) framework integrates risk across all business units. A bank's ERM function identifies that the credit risk division hedges interest rate exposure using swaps, while the treasury also hedges a similar exposure. What specific ERM benefit does this situation highlight?
Which of the following risk performance measures adjusts returns for systematic risk only, making it most appropriate for evaluating a well-diversified portfolio?
A portfolio generated a return of 14%, while its benchmark returned 11%. The tracking error of the portfolio is 6%. What is the information ratio?
A risk analyst estimates a simple linear regression: Y = 2.5 + 1.8X. The standard error of the slope coefficient is 0.6. With 30 observations and using a t-critical value of 2.048 at the 5% significance level, what is the 95% confidence interval for the slope?
A risk analyst performs a hypothesis test with H₀: μ = 100 and H₁: μ ≠ 100. The calculated p-value is 0.03. At a 5% significance level, what should the analyst conclude?
An asset's daily returns have a mean of 0.05% and a standard deviation of 1.2%. Assuming returns are normally distributed, what is the probability that the return on any given day exceeds 2.45%?
An analyst applies Bayes' theorem to update the probability of a bond default. The prior probability of default is 2%. A credit scoring model flags 90% of actual defaults and 5% of non-defaults. If a bond is flagged, what is the updated probability of default?
Which of the following best describes multicollinearity in a multiple regression model?
A European call option is priced at $8 and the corresponding European put option on the same stock is priced at $3. The stock price is $50, the strike price is $45, and the risk-free rate is 5% per year. The options expire in one year. Does put-call parity hold?
A bond has a modified duration of 7.2 years and a current price of $1,025. If yields increase by 25 basis points, what is the approximate change in the bond's price?
A corporation enters into an interest rate swap as a fixed-rate payer. Which of the following best describes the corporation's position?
The spot price of a non-dividend-paying stock is $100, and the continuously compounded risk-free rate is 6% per year. What is the 6-month forward price?
A bank holds a portfolio of corporate bonds and purchases credit default swap (CDS) protection on the same reference entities. Which residual risk is the bank MOST likely still exposed to?
Which of the following statements about central clearing of OTC derivatives is CORRECT?
A bond with a face value of $1,000 has a DV01 of $0.085. If the yield curve shifts upward by 10 basis points, what is the approximate change in the bond's price?
A portfolio has a daily VaR of $2.5 million at the 99% confidence level. Assuming returns are normally distributed, what is the approximate 10-day VaR at the same confidence level?
Expected Shortfall (ES) at the 97.5% confidence level is best described as:
Using the EWMA model with λ = 0.94, yesterday's volatility estimate was 1.5% and yesterday's return was 2.1%. What is today's volatility estimate?
A risk manager backtests a 99% VaR model over 250 trading days and observes 8 exceptions. Using the Basel traffic light framework, how would this model be classified?
The GARCH(1,1) model σ²_t = ω + αr²_{t−1} + βσ²_{t−1} has which advantage over the EWMA model?
A bank estimates that a corporate borrower has a probability of default (PD) of 3%, a loss given default (LGD) of 45%, and an exposure at default (EAD) of $10 million. What is the expected loss?
A risk analyst measures VaR using historical simulation with 500 days of data at the 99% confidence level. Which of the following is the MOST significant limitation of this approach?
A credit analyst estimates a credit spread for a 1-year zero-coupon bond. The probability of default is 4% and the recovery rate is 40%. Assuming continuous compounding, what is the approximate credit spread?
PrepAscend has >1,100 FRM practice questions with question style filtering, a Socratic AI coach, adaptive mock exams, and a real-time pass predictor.
Also check out the FRM Part 1 formula sheet to review key formulas alongside these questions.
Start FRM Level 1 PrepPrepAscend is not affiliated with, endorsed by, or associated with the Global Association of Risk Professionals (GARP). FRM®, GARP®, and Financial Risk Manager® are trademarks owned by GARP.