PRM – Professional Risk Manager
PRM – PROFESSIONAL RISK MANAGER | COMPLETE EXAM 2026/2027 |
QUESTIONS AND 100% VERIFIED ANSWERS | PASS GUARANTEE
1. Under the Capital Asset Pricing Model (CAPM), what does beta measure?
A. The sensitivity of an asset's returns to the market portfolio's returns
B. The dividend yield of an asset
C. The risk-free rate of return
D. The total variance of an asset's returns
ANSWER : A
2. According to CAPM, the expected return of a security is a function of
which risk?
A. Total risk, systematic plus unsystematic
B. Unsystematic (idiosyncratic) risk only
C. Systematic (non-diversifiable) risk only
D. Liquidity risk only
ANSWER : C
3. What is the primary distinction between the Capital Market Line (CML)
and the Security Market Line (SML)?
A. CML applies only to bonds; SML applies only to equities
B. CML uses standard deviation and applies to efficient portfolios; SML
uses beta and applies to any asset
C. There is no meaningful distinction between them
D. CML is used in options pricing; SML is used in bond pricing
ANSWER : B
4. In Modern Portfolio Theory, the efficient frontier represents:
A. The set of portfolios with zero risk
B. The set of portfolios with the lowest expected return
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C. The set of portfolios offering the highest expected return for each level
of risk
D. Only portfolios containing the risk-free asset
ANSWER : C
5. Which of the following best describes Arbitrage Pricing Theory (APT)
relative to CAPM?
A. APT allows for multiple risk factors rather than a single market factor
B. APT assumes only one factor drives all asset returns
C. APT rejects the existence of risk premia entirely
D. APT is identical to CAPM in its assumptions
ANSWER : A
6. A forward contract differs from a futures contract primarily in that:
A. Forwards are customized, over-the-counter agreements while futures
are standardized and exchange-traded
B. Forwards have daily mark-to-market margining while futures do not
C. Forwards are always cash-settled while futures are always physically
settled
D. Forwards can only be written on commodities
ANSWER : A
7. What is the primary purpose of daily marking-to-market in futures
contracts?
A. To determine the contract's expiration date
B. To eliminate the need for an exchange clearinghouse
C. To manage counterparty credit risk by settling gains and losses daily
D. To set the contract's initial notional value
ANSWER : C
8. Put-call parity establishes a relationship between which of the following?
A. A call option, a put option, the underlying asset, and a risk-free bond
B. Dividend yield and interest rate swaps
C. The spot rate and forward rate of currencies only
D. Two call options with different strikes only
ANSWER : A
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9. Which Greek measures an option's sensitivity to a change in the volatility
of the underlying asset?
A. Vega
B. Rho
C. Theta
D. Delta
ANSWER : A
10. Which option Greek measures the rate of change of delta with respect to
the underlying asset's price?
A. Gamma
B. Vega
C. Theta
D. Rho
ANSWER : A
11. An option's time decay is captured by which Greek?
A. Gamma
B. Theta
C. Delta
D. Vega
ANSWER : B
12. In the Black-Scholes model, which of the following is NOT an assumption
of the original framework?
A. No transaction costs or taxes exist
B. Markets allow continuous trading
C. Volatility is constant over the option's life
D. Stock returns follow a jump-diffusion process
ANSWER : D
13. A currency swap primarily allows two counterparties to:
A. Exchange only interest payments in the same currency
B. Exchange principal and interest payments denominated in different
currencies
C. Trade physical currency at the spot rate only
D. Avoid all foreign exchange exposure permanently
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ANSWER : B
14. An interest rate swap that exchanges fixed for floating payments is
primarily used to:
A. Replace the need for bond issuance entirely
B. Manage or transform interest rate exposure between fixed and floating
rate liabilities
C. Eliminate credit risk between counterparties
D. Guarantee a fixed exchange rate
ANSWER : B
15. The duration of a bond measures:
A. The bond's coupon rate relative to par value
B. The bond's time to first coupon payment only
C. The bond's credit rating over time
D. The approximate sensitivity of the bond's price to changes in interest
rates
ANSWER : D
16. Convexity in bond pricing refers to:
A. The curvature in the relationship between bond price and yield,
capturing the error left by duration
B. The linear relationship between bond price and coupon rate
C. The bond's exposure to foreign exchange risk
D. The probability of default over the bond's life
ANSWER : A
17. A bond's modified duration is used to estimate:
A. The bond's exact price at maturity
B. The approximate percentage change in bond price for a 1% change in
yield
C. The bond issuer's probability of default
D. The bond's credit spread over Treasuries
ANSWER : B
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PRM – PROFESSIONAL RISK MANAGER | COMPLETE EXAM 2026/2027 |
QUESTIONS AND 100% VERIFIED ANSWERS | PASS GUARANTEE
1. Under the Capital Asset Pricing Model (CAPM), what does beta measure?
A. The sensitivity of an asset's returns to the market portfolio's returns
B. The dividend yield of an asset
C. The risk-free rate of return
D. The total variance of an asset's returns
ANSWER : A
2. According to CAPM, the expected return of a security is a function of
which risk?
A. Total risk, systematic plus unsystematic
B. Unsystematic (idiosyncratic) risk only
C. Systematic (non-diversifiable) risk only
D. Liquidity risk only
ANSWER : C
3. What is the primary distinction between the Capital Market Line (CML)
and the Security Market Line (SML)?
A. CML applies only to bonds; SML applies only to equities
B. CML uses standard deviation and applies to efficient portfolios; SML
uses beta and applies to any asset
C. There is no meaningful distinction between them
D. CML is used in options pricing; SML is used in bond pricing
ANSWER : B
4. In Modern Portfolio Theory, the efficient frontier represents:
A. The set of portfolios with zero risk
B. The set of portfolios with the lowest expected return
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, PRM – Professional Risk Manager
C. The set of portfolios offering the highest expected return for each level
of risk
D. Only portfolios containing the risk-free asset
ANSWER : C
5. Which of the following best describes Arbitrage Pricing Theory (APT)
relative to CAPM?
A. APT allows for multiple risk factors rather than a single market factor
B. APT assumes only one factor drives all asset returns
C. APT rejects the existence of risk premia entirely
D. APT is identical to CAPM in its assumptions
ANSWER : A
6. A forward contract differs from a futures contract primarily in that:
A. Forwards are customized, over-the-counter agreements while futures
are standardized and exchange-traded
B. Forwards have daily mark-to-market margining while futures do not
C. Forwards are always cash-settled while futures are always physically
settled
D. Forwards can only be written on commodities
ANSWER : A
7. What is the primary purpose of daily marking-to-market in futures
contracts?
A. To determine the contract's expiration date
B. To eliminate the need for an exchange clearinghouse
C. To manage counterparty credit risk by settling gains and losses daily
D. To set the contract's initial notional value
ANSWER : C
8. Put-call parity establishes a relationship between which of the following?
A. A call option, a put option, the underlying asset, and a risk-free bond
B. Dividend yield and interest rate swaps
C. The spot rate and forward rate of currencies only
D. Two call options with different strikes only
ANSWER : A
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, PRM – Professional Risk Manager
9. Which Greek measures an option's sensitivity to a change in the volatility
of the underlying asset?
A. Vega
B. Rho
C. Theta
D. Delta
ANSWER : A
10. Which option Greek measures the rate of change of delta with respect to
the underlying asset's price?
A. Gamma
B. Vega
C. Theta
D. Rho
ANSWER : A
11. An option's time decay is captured by which Greek?
A. Gamma
B. Theta
C. Delta
D. Vega
ANSWER : B
12. In the Black-Scholes model, which of the following is NOT an assumption
of the original framework?
A. No transaction costs or taxes exist
B. Markets allow continuous trading
C. Volatility is constant over the option's life
D. Stock returns follow a jump-diffusion process
ANSWER : D
13. A currency swap primarily allows two counterparties to:
A. Exchange only interest payments in the same currency
B. Exchange principal and interest payments denominated in different
currencies
C. Trade physical currency at the spot rate only
D. Avoid all foreign exchange exposure permanently
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, PRM – Professional Risk Manager
ANSWER : B
14. An interest rate swap that exchanges fixed for floating payments is
primarily used to:
A. Replace the need for bond issuance entirely
B. Manage or transform interest rate exposure between fixed and floating
rate liabilities
C. Eliminate credit risk between counterparties
D. Guarantee a fixed exchange rate
ANSWER : B
15. The duration of a bond measures:
A. The bond's coupon rate relative to par value
B. The bond's time to first coupon payment only
C. The bond's credit rating over time
D. The approximate sensitivity of the bond's price to changes in interest
rates
ANSWER : D
16. Convexity in bond pricing refers to:
A. The curvature in the relationship between bond price and yield,
capturing the error left by duration
B. The linear relationship between bond price and coupon rate
C. The bond's exposure to foreign exchange risk
D. The probability of default over the bond's life
ANSWER : A
17. A bond's modified duration is used to estimate:
A. The bond's exact price at maturity
B. The approximate percentage change in bond price for a 1% change in
yield
C. The bond issuer's probability of default
D. The bond's credit spread over Treasuries
ANSWER : B
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