Exam Feedback May 2018 Part 1 Exam Feedback

[ab88]

1. Won’t rising rates make it easier to fund the pension plan? As for the impact on the shareholders fund (i.e. shareholders equity), I am not too sure. I selected that it decreases. My logic was that when rates rise, fixed income asset prices drop but the pension plan's liability remains constant...hence a net negative impact to shareholders equity. This question was referring to a defined benefit plan. Somebody please let me know if my understanding of this is correct.

Read here more for information on this: https://www.brookings.edu/research/...erest-rate-for-defined-benefit-pension-plans/

3. I also chose variation margin of 54000. Only sensible answer in my opinion.

4. Wasn’t it asking for the price of the warrant given the price of a call? Answer is N/(N+M) * Price of call

5. I don’t remember this. Par rate? Or you mean discount rate (the question in a table format where you were asked to find the spot rate of the bottom row)? There was also a question where you given semi annual compounding rate and asked to find the monthly compound rate.

6. I applied standard formula and got an answer.

7. I can’t recall my answer now, but won’t rising futures prices hurt a stack and roll strategy?

8. How was this question framed again? Can’t recall it!

1. Why would liabilities remain constant? Wouldn't they fall, PV fall and new asset investment to fulfill future liabilities will also fall. What I mean is higher interest rates should help pension funds to fulfill their obligations easily.
I thought of it like this, pension funds defined benefit ones are in a way short on future rates, they receive defined / calculated amount and pay up at maturity in futures..if interest rates go up they effectively pay up less. Thus I guess increasing their shareholders wealth?

 

[ab88]

I'm trying to recall question from Foundations of Risk Management. There should be 20 questions in all, but I can only recall 10. Can someone see what I'm missing out on? I've got 18/25/25 questions for Books 2/3/4 respectively.

1. IR/Sharpe ratio
2. Impact of Beta/volatility on Jensen/Sharpe/Sortino/Treynor
3. Theory question on CAPM
4. Barings failure
5. Metallgesellschaft
6. Multifactor model
7. GARP Code of Conduct - (Employee uses model from previous employer)
8. ERM Framework - (One of the answers spoke about line management)
9. Operational risk - Which of the following is an operational risk (Answer was rogue trading or something)
10. Some question about Data Aggregation

What am I missing out on? Appreciate all your help.

One on risk management failure. Wrong distribution something I guess

 

[jbejarjimenez]

Does anyone have a guess of what would be the cutoff score? Haver read in other forums that around high fifties

 

[krystynkatt]

Does anyone have a guess of what would be the cutoff score? Haver read in other forums that around high fifties

Sure about it? I've seen something between 60 and 70+ wrt previous exams.
Edit: for foundations of risk management, there was a qn on role of board. One answer was.on setting up limit framework for the bank and the other on maximizing profit for shareholders.

 

[jbejarjimenez]

https://www.quora.com/How-many-questions-do-I-have-to-solve-to-pass-the-FRM-part-1-Exam

 

[nikic]

Does anyone have a guess of what would be the cutoff score? Haver read in other forums that around high fifties

Maybe high fifties for a difficult paper. By all accounts this seemed to have been a fair paper difficulty wise. So I'm thinking pass would be at around 65, maybe slightly lower at 62 or 63.

 

[krystynkatt]

I'm trying to recall question from Foundations of Risk Management. There should be 20 questions in all, but I can only recall 10. Can someone see what I'm missing out on? I've got 18/25/25 questions for Books 2/3/4 respectively.

1. IR/Sharpe ratio
2. Impact of Beta/volatility on Jensen/Sharpe/Sortino/Treynor
3. Theory question on CAPM
4. Barings failure
5. Metallgesellschaft
6. Multifactor model
7. GARP Code of Conduct - (Employee uses model from previous employer)
8. ERM Framework - (One of the answers spoke about line management)
9. Operational risk - Which of the following is an operational risk (Answer was rogue trading or something)
10. Some question about Data Aggregation

What am I missing out on? Appreciate all your help.

there was also a qualitative one on Fama-French model. One of the answers was that the predictors are proxies for macro variables, or something similar.

 

[nikic]

there was also a qualitative one on Fama-French model. One of the answers was that the predictors are proxies for macro variables, or something similar.

Was that the correct answer? I’ve a feeling I selected it, but can’t be sure. Was this the obvious answer or were there other tight choices?

 

[nikic]

Sure about it? I've seen something between 60 and 70+ wrt previous exams.
Edit: for foundations of risk management, there was a qn on role of board. One answer was.on setting up limit framework for the bank and the other on maximizing profit for shareholders.

Hmm, recall any other answers? It sounds like setting up of the limits framework would be the correct answer, but I need to know the other two options. Cause as far as I can tell in reality, the board risk committee is responsible to set up a limits framework and the board of directors approves it. I wouldn’t likely have chosen maximising profits for shareholders.

 

[nikic]

One on risk management failure. Wrong distribution something I guess

What was that on risk mgmt failure?

And wrong distribution?

 

[krystynkatt]

For Fama-French model, I dont remember the other answers, but I have a feeling that the answer with macro factors is not correct, as smb and hml do not really describe macroeconomic situation of a country (correct me if im wrong). I selected this answer though. Does anyone else recall?

 

[ab88]

What was that on risk mgmt failure?

And wrong distribution?

One question on risk management failure. One of options was wrong distribution assumption made. Don't remember exactly.

 

[ag0511]

About the cutoff, I believe Quartile 1 in each section may be awarded to people getting between 85 or 80 -100% ( the distribution should be such) and quartile 2 could be between 68-65 to 80 -85 %.So most likely scenario is to get 65 % and above in each section and get through or not fall below 55-60 in at the most two section and compensate it by scoring 80 % or more ( preferably in sections having weightage of 30% each)

 

[ag0511]

For Fama-French model, I dont remember the other answers, but I have a feeling that the answer with macro factors is not correct, as smb and hml do not really describe macroeconomic situation of a country (correct me if im wrong). I selected this answer though. Does anyone else recall?

The question was to choose the false statement about fama french model - Answer was that it does not account for market risk premium

 

[ag0511]

I believe the best way to recall the ques which appeared in the exam to go through the topicwise reading material.Though at the the time of writing this,do not have access to any study material .But let me start by Quantitative techniques in the backward order

1.Ques on simulation - explaination of statement describing reduction of error.Ans Antithetic variate -1 ques
2.Questions on EMWA and GARCH ,I guess -2-3 ques
3.Question on copula -1 ques
4.AR and MA -Some choices related to which can be inverted -1 ques
5.Finding correlation from TSS and SSR -1 ques - My Ans Sq root of .64=0.8
6.T test - Whether null hypothesis can be rejected or not-1 ques-My ans fail to reject null
7.SIC.MSE and AIC- Which is most consistent -1 Ques-Ans SIC
8.Probablity- Some question which required use of binomial distribution- 1 Ques
9.Binomial Distribution-1-2 question

Will appreciate if people are able to recall and type the question and answer for the benefit of everybody. I am not done yet as far as questions related to this section is concerned.Similarly will like to recall question from other three sections

 

[nikic]

About the cutoff, I believe Quartile 1 in each section may be awarded to people getting between 85 or 80 -100% ( the distribution should be such) and quartile 2 could be between 68-65 to 80 -85 %.So most likely scenario is to get 65 % and above in each section and get through or not fall below 55-60 in at the most two section and compensate it by scoring 80 % or more ( preferably in sections having weightage of 30% each)

I have a hard time believing Q1 cutoff in each section would be at 85%. Heck even 80%...I'm doubtful of it. If indeed Q1 is at between 80-85% I'm SOL! I'd have expected Q1 to be at ~75-80% and Q2 to be at ~60-65%, with the overall cutoff to pass at ~65/100 marks.

 

[nikic]

I believe the best way to recall the ques which appeared in the exam to go through the topicwise reading material.Though at the the time of writing this,do not have access to any study material .But let me start by Quantitative techniques in the backward order

1.Ques on simulation - explaination of statement describing reduction of error.Ans Antithetic variate -1 ques
2.Questions on EMWA and GARCH ,I guess -2-3 ques
3.Question on copula -1 ques
4.AR and MA -Some choices related to which can be inverted -1 ques
5.Finding correlation from TSS and SSR -1 ques - My Ans Sq root of .64=0.8
6.T test - Whether null hypothesis can be rejected or not-1 ques-My ans fail to reject null
7.SIC.MSE and AIC- Which is most consistent -1 Ques-Ans SIC
8.Probablity- Some question which required use of binomial distribution- 1 Ques
9.Binomial Distribution-1-2 question

Will appreciate if people are able to recall and type the question and answer for the benefit of everybody. I am not done yet as far as questions related to this section is concerned.Similarly will like to recall question from other three sections

I have all 20 for Quants. Appreciate if you can add the rest for Topics 1/3/4.

Those that you missed out:

1. Poisson dist
2. Z-test
3. Stationarity
4. Comparison between R^2 and Adj R^2
5. 3-yr Migration probability question on Bond
6. Probability of defaulting bond being BB or C (given default probability and proportion for AA, BB and C bond)
7. Find the std dev of the more volatile fund
8. Find std dev/covariance

 

[nikic]

The question was to choose the false statement about fama french model - Answer was that it does not account for market risk premium

I know it's a stretch, do you recall the other answers? Were they obvious to reject?

Also, was the FALSE answer "does not account for market risk premium" or "accounts for market risk premium"? I'm assuming it's the former...but damn this is tricky...I can't recall one bit what answer I marked for this.

 

[ab88]

I believe the best way to recall the ques which appeared in the exam to go through the topicwise reading material.Though at the the time of writing this,do not have access to any study material .But let me start by Quantitative techniques in the backward order

1.Ques on simulation - explaination of statement describing reduction of error.Ans Antithetic variate -1 ques
2.Questions on EMWA and GARCH ,I guess -2-3 ques
3.Question on copula -1 ques
4.AR and MA -Some choices related to which can be inverted -1 ques
5.Finding correlation from TSS and SSR -1 ques - My Ans Sq root of .64=0.8
6.T test - Whether null hypothesis can be rejected or not-1 ques-My ans fail to reject null
7.SIC.MSE and AIC- Which is most consistent -1 Ques-Ans SIC
8.Probablity- Some question which required use of binomial distribution- 1 Ques
9.Binomial Distribution-1-2 question

Will appreciate if people are able to recall and type the question and answer for the benefit of everybody. I am not done yet as far as questions related to this section is concerned.Similarly will like to recall question from other three sections

5. Pardon me this has been discussed earlier though remained incomplete.
SSE was given as 458 and SSR as 252. So total SST was 700. For finding R sq. we neded SS explained by regression / total SS
= 252/700 = 0.36 and correlation = sqrt(.36) = 0.6
I got this answer. Does it seem correct?

 

[ag0511]

I have all 20 for Quants. Appreciate if you can add the rest for Topics 1/3/4.

Those that you missed out:

1. Poisson dist
2. Z-test
3. Stationarity
4. Comparison between R^2 and Adj R^2
5. 3-yr Migration probability question on Bond
6. Probability of defaulting bond being BB or C (given default probability and proportion for AA, BB and C bond)
7. Find the std dev of the more volatile fund
8. Find std dev/covariance

Thanks