FRM Book 3 Chapter 16 UPDATED
ACTUAL Exam Questions and CORRECT
Answers
How is the Libor fixing for a particular currency and maturity determined on a day - CORRECT
ANSWER - Sixteen banks make estimates of the rate at which they can borrow from other
banks just prior to 11 a.m. U.K. time. The top four and bottom four estimates are dis-carded, and
the remainder are averaged.
What is a repo rate? - CORRECT ANSWER - A repo rate is a short-term secured lending
rate. The borrower agrees to sell securities to the lender and buy them back for a slightly higher
price a little later.
Which is better for an investor: 6% per year compounded annually or 6% per year compounded
monthly - CORRECT ANSWER - 6% per year compounded monthly is better. 6% per
year compounded monthly is
(1+0.6/12)^12 - 1 = 0.0617
What is the formula for calculating the value at a future time T of an investment of amount A
when the interest rate is R and the compounding frequency is m? - CORRECT ANSWER -
A (1 + (R/M))^mT
What is the formula for the present value of an amount A received at time T when the
continuously compounded interest rate is R? - CORRECT ANSWER - Ae^(-RT)
How is the par yield on a bond defined? - CORRECT ANSWER - A bond's par yield is the
coupon rate on the bond that causes the bond's price to equal its par value.
How is a bond yield defined? - CORRECT ANSWER - A bond's yield is the discount rate
that, when used for all of the bond's cash flows, causes the total present value of the cash flows
to equal the current market price of the bond.
ACTUAL Exam Questions and CORRECT
Answers
How is the Libor fixing for a particular currency and maturity determined on a day - CORRECT
ANSWER - Sixteen banks make estimates of the rate at which they can borrow from other
banks just prior to 11 a.m. U.K. time. The top four and bottom four estimates are dis-carded, and
the remainder are averaged.
What is a repo rate? - CORRECT ANSWER - A repo rate is a short-term secured lending
rate. The borrower agrees to sell securities to the lender and buy them back for a slightly higher
price a little later.
Which is better for an investor: 6% per year compounded annually or 6% per year compounded
monthly - CORRECT ANSWER - 6% per year compounded monthly is better. 6% per
year compounded monthly is
(1+0.6/12)^12 - 1 = 0.0617
What is the formula for calculating the value at a future time T of an investment of amount A
when the interest rate is R and the compounding frequency is m? - CORRECT ANSWER -
A (1 + (R/M))^mT
What is the formula for the present value of an amount A received at time T when the
continuously compounded interest rate is R? - CORRECT ANSWER - Ae^(-RT)
How is the par yield on a bond defined? - CORRECT ANSWER - A bond's par yield is the
coupon rate on the bond that causes the bond's price to equal its par value.
How is a bond yield defined? - CORRECT ANSWER - A bond's yield is the discount rate
that, when used for all of the bond's cash flows, causes the total present value of the cash flows
to equal the current market price of the bond.
