GARP 2012 Q15

[vkichoi]

You are using key rate shifts to analyze the effect of yield changes on bond prices. Suppose that the 10-year yield has increased by 10 bp and that this shock decreases linearly to 0 for the 20-year yield. What is the effect of this shock on the 14-year yield?

a. increase of 0 bp
b. increase of 4 bp
c. increase of 6 bp
d. increase of 10 bp

Answer: c
Explanation: The 10bp shock to the 10-year yield is supposed to decline linearly to 0 for the 20 year yield. Thus, the shock decreases by 1 bp per year and will result in an increase o f 6bp for the 14 year yield.

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Maybe I am too stupid. GARP seems like just paraphrasing the question with the answer in it.

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some rants: I totally don't get why GARP does not publish the sample exams in PDF files readily available for the test takers to download. I thought FRM exams are written exam and not computer based. Further, I don't get why they publish only 1/4 of a full exam for each year... They can choose to publish one full exam every n sittings, which would be more helpful for the test takers.

Thank you so much David for creating the 2010 GARP exams. I really like your explanations and your format.

 

[David Harper CFA FRM]

Hi vkichoi - agreed. Let's get real, this is not a good question. It doesn't even query interpolation in a meaningful way (and it's certainly no way to query a comprehension of key rate shifts). Thanks,