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GARP Financial Risk and Regulation (FRR) Series Sample Questions (Q156-Q161):
NEW QUESTION # 156
What are some of the drawbacks of correlation estimates? Which of the following statements identifies major
problems with correlation calculations?
I. Correlation estimates are not able to capture increases in factor co-movements in extreme market scenarios.
II. Correlation estimates tend to be unstable.
III. Historical correlations may not forecast future correlations correctly.
IV. Correlation estimates assume normally distributed returns.
Answer: D
NEW QUESTION # 157
To estimate the forward price of oil, a commodity trader would most likely use the following pricing
relationship:
Answer: D
NEW QUESTION # 158
Samuel Teng owns a portfolio of bonds and is trying to compute the convexity of his portfolio. Which of the
following choices equals the convexity of Samuel's portfolio?
Answer: C
NEW QUESTION # 159
Which one of the following four statements regarding commodity exchanges is INCORRECT?
Answer: C
NEW QUESTION # 160
Jack Richardson wants to compute the 1-month VaR of a portfolio with a market value of USD 10 million, with an average monthly return of 1% and average monthly standard deviation of 1.5%. What is the portfolio VaR at 99% confidence level?
Probability Cumulative Normal distribution
0.90 1.282
0.91 1.341
0.92 1.405
0.93 1.476
0.94 1.555
0.95 1.645
0.96 1.751
0.97 1.881
0.98 2.054
0.99 2.326
Answer: D
Explanation:
* Identify the variables:
* Market value of the portfolio (P) = $10,000,000
* Average monthly return (#) = 1%
* Average monthly standard deviation (#) = 1.5%
* Confidence level = 99%
* Corresponding z-score for 99% confidence level (z) = 2.326
* Calculate the 1-month VaR:The formula for VaR at a given confidence level is:
VaR=#×(###×#)VaR=P×(##z×#)
Here, we need to use the absolute values for the standard deviation and the z-score:
* #=1%=0.01#=1%=0.01
* #=1.5%=0.015#=1.5%=0.015
* #=2.326z=2.326
* Apply the formula:
VaR=10,000,000×(0.01#2.326×0.015)VaR=10,000,000×(0.01#2.326×0.015)
* Simplify the calculation:
VaR=10,000,000×(0.01#0.03489)VaR=10,000,000×(0.01#0.03489)VaR=10,000,000×(#0.02489)VaR=10,
000,000×(#0.02489)VaR=#248,900VaR=#248,900
The negative sign indicates a potential loss. Therefore, the absolute VaR is:
VaR=248,900VaR=248,900
However, the calculation provided in the multiple-choice options likely considers a rounding adjustment. The closest option to this calculation is B. 232,600. This could imply either a slight adjustment in the z-score or a rounding mechanism not detailed in the problem statement.
References:
No specific reference needed as the calculation is based on standard financial formulas and given values.
NEW QUESTION # 161
......
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