Practice Quiz

FRM Financial Risk Manager Practice Test - Question List

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36. Alpha is a risk-adjusted measure of the active return on an investment. It is a return in excess of the compensation for the risk occurred and thus, commonly used to assess active managers' performances. The higher the alpha,...
  1. The worse the manager.
  2. The better the manager.
  3. The same the manager.
  4. The more risk.
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37. According to the CAPM, portfolios may randomly outperform or underperform the market from one year to the next. However, when portfolios consistently outperform the market over the years, which of the following is NOT true about alpha?
  1. Alpha is the difference in the expected returns of the portfolio that is performing well over the years and that of the market portfolio.
  2. Alpha shows a persistent positive contribution to a portfolio's expected return due to the manager's skill.
  3. Alpha cannot be negative.
  4. If alpha is positive, it means that investment portfolios outperform the market portfolio. If alpha is negative, it means that investment portfolios underperform the market portfolio.
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38. Volatility is the amount by which the price of a security swings up and down. If the price of a security moves up and down frequently, it has.... volatility. Fill in the blank with the most suitable word.
  1. high.
  2. low.
  3. medium.
  4. no.
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39. The Volatility Index (VIX) is the most popular measure of stock market volatility. Mike is an investor and despite the fact that the VIX is high, he still decides to buy stocks. He makes that decision because
  1. The VIX history shows that he should do so.
  2. His own intuition tells him to do so.
  3. His personal savings allows him to do so.
  4. He has nothing else do to.
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40. Britney is a trader and she holds her portfolio of commodity forwards. She knows what the market value is today, but she is uncertain about its market value a week from today. What does it mean?
  1. Britney faces market risk.
  2. Since market value is unpredictable, Britney should not hold the portfolio but should sell it soon.
  3. Britney’s uncertainty can be managed by long term focus with careful planning and investment.
  4. Her trading activity is agreed to by a contract so she doesn’t face any risk in the future.
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