Prm quest
Content
THE PROFESSIONAL RISK MANAGER (PRM™) CERTIFICATION PROGRAM
PRM Self Study Guide – Sample Questions (FIVE OF FIVE)
UPDATED-JANUARY-2013
PRMIA
FROM THE CRADLE TO THE PINNACLE OF YOUR CAREER
A Higher Standard for Risk Professionals
A
s a non-profit, member-led association of professionals, the Professional Risk Managers’ International Association (PRMIA) is dedicated to advancing the standards of the profession worldwide through the free exchange of ideas. We are committed to helping our members achieve these standards through the following resources.
CONNECTION TO A LOCAL CHAPTER NETWORK OF 90,000 MEMBERS WORLDWIDE – PRMIA offers 200 meetings each year are offered through its local chapters, giving members access to the best practices of the global risk profession and to a local network of colleagues. THE PROFESSIONAL RISK MANAGER (PRM) CERTIFICATION – Endorsed by leading universities and businesses, the PRM certification is the global standard for financial risk managers. ASSOCIATE PRM CERTIFICATE – Covers the core concepts of risk management, allowing non-specialists to interpret risk management information and reports, make critical assessments, and evaluate the implications and the limitations of such results. PRMIA MEMBERS HAVE ACCESS TO A WEALTH OF ONLINE RESOURCES cluding a Jobs Board with risk management job openings cities around the world, links to past presentations and papers, and much more.
Inin
PRMIA EDUCATION – Offering classroom instruction and over 700 online professional development courses, all customizable to your personal or corporate needs.
WWW.PRMIA.ORG
J
oin thousands of other risk professionals dedicated to advancing the standards of the risk profession worldwide by becoming a Sustaining member of PRMIA. This exclusive membership provides the highest level of benefits, discounts, and opportunities available. Visit http://www.prmia.org/membership or email [email protected] to become a member or to learn more.
TM
PRM SELF-STUDY GUIDE – SAMPLE QUESTIONS OVERVIEW
T
TM
he PRM certification tests a candidate’s knowledge and understanding of the foundations of finance theory, the financial instruments that provide tools for the mitigation or transfer of risk,
and the financial markets in which instruments are traded and capital is raised. This Self-Study Guide helps in focusing your study on the key Learning Outcome Statements from each chapter. These Learning Outcome Statements form the basis for the questions asked during the PRM
TM
examination. We recommend that you first read the chapter, then review the Learning Outcome Statements, then re-read the chapter with particular emphasis on these points. We recommend strongly that you do not simply read the Learning Outcome Statements and then try to find the information about each in the books as a short-cut way of preparing for the exam. Real-life risk management requires your ability to assemble information from many simultaneous inputs and you can expect that some exam questions will draw from multiple Learning Outcome Statements. TM
Taking the PRM qualification, as well as working as a risk officer, requires a certain amount of mathematical expertise. This is not excessive. Anyone who was passed mathematics studies at advanced high school level, or who has completed the first year of a university degree in a mathematical-based qualification (physics, economics, engineering, etc) should have no problem with the requirements. For others, we recommend that they take tuition in the mathematics required and that they focus on this as the TM
first part of their studies for the PRM . This section of the Study Guide provides some Sample Exam Questions. You may also wish to purchase access to further online Sample Exams via the PRMIA website to assess your readiness. Please note that testing conditions, your state of mind and various factors can make your performance on the actual exams somewhat less strong than on the Sample Exams. If your Sample Exam scores are near to the passing mark, you may wish to study the subject materials even further.
TABLE OF CONTENTS TM
Please remember that the exams of the PRM certification are very challenging.
Overview
p. 1
After all it’s “a higher standard in risk certification” and you would expect nothing
Sample Exam Questions
p. 4
less. There is no guarantee that using the Self-Study Guide, in combination with
Exam I
p. 4
the reading materials and Sample Exams will give you a passing score. But, they
Exam II
p. 7
should all provide you with assistance in doing your best. We wish you much suc-
Exam III
p. 9
cess in your effort to become certified as a Professional Risk Manager!
Exam IV
p. 12
Answers
p. 14
1
WORD DEFINITIONS In this guide, we use Command Words. These are similar to those used by the CFA Institute, with a few additional words, and indicate levels of ability expected from successful candidates on each Learning Outcome Statement. Calculate
To ascertain or determine by mathematical processes.
Characterize
To describe the essential character or quality of.
Compare
To examine the character or qualities of, for the primary purpose of discovering resemblances.
Construct
To create by organizing ideas or concepts logically and coherently.
Contrast
To compare in respect to differences.
Deconstruct
To disassemble the key elements of ideas or concepts.
Define
To set forth the meaning of; specifically, to formulate a definition of.
Demonstrate To prove or make clear by reasoning or evidence; to illustrate and explain, especially with examples.
2
Derive
To obtain by reasoning.
Describe
To transmit a mental image, an impression, or an understanding of the nature and characteristics of.
Differentiate
To mark or show a difference in; to develop different characteristics in.
Discuss
To discourse about through reasoning or argument; to present in detail.
Draw
To express graphically in words; to delineate.
Explain
To give the meaning or significance of; to provide an understanding of; to give the reason for or cause of.
Identify
To establish the identity of; to show or prove the sameness of.
List
To enumerate.
Show
To set forth in a statement, account, or description; to make evident or clear.
State
To express in words.
P RM
TM
SELF-STUDY GUIDE – SAMPLE QUESTIONS
USAGE OF THE CALCULATOR At the exam centre you will have access to an on-line Texas Instrument TI308XS calculator. No other materials may be brought into the exam room with you. It is suggested that candidates purchase the hand-held version (TI-30XS) to fully familiarize themselves with the calculator. User guide for the calculator can be found by clicking on the link: http://education.ti.com/guidebooks/scientific/30xmv/TI30XSMultiViewGuide_en.pdf
For system requirements please click on system requirements and download instructions Note: The practice exam is not accessible on Mac computers. 1. Download the Pearson Vue Tutorial & Practice Exam by clicking here – if the link does not work, cut and paste this in your browser: http://www.pearsonvue.com/athena/PearsonVueTutorialDemo.msi 2. Click "run" if you have that option otherwise click "save file" 3. Open the saved file. (If you clicked "Run" skip this step) 4. Follow the Software Installation prompts 5. Run the installed software 6. Check the box for the Practice Exam 7. Click on the "next" button until you get to the screen with the calculator icon in the upper left hand corner of the screen. 8. Click on the calculator icon to be able practice with the TI308XS calculator.
OVERVIEW
3
SAMPLE EXAM QUESTIONS
T
he following sample questions should give you a flavor for the format and content of the actual exams. They are only part of the length of the actual exams and therefore do not cover all subjects contained in the detailed content descriptions provided in this Study Guide. Questions on any of the subjects listed in the Study Guide documents may appear on the actual exam.
EXAM I – FINANCE THEORY, FINANCIAL INSTRUMENTS AND MARKETS
1.
Assume you live in a CAPM world and the expected return on the market portfolio is 9%, while the risk free rate is 3%. If the beta of stock A is 1.3, the expected return on A is: a) 14.7% b) 12.9% c) 10.8% d) 16.8%
2.
In the valuation of derivatives, the expression "change of measure" means: a) Setting the drift to zero b) Change of volatility c) Both (a) and (b) d) None of the above
3.
Which of the following is true? a) Non-Markovian interest rate processes are usually represented by recombining trees b) Markovian interest rate processes are usually represented by recombining trees c) Non-Markovian interest rate processes are usually represented by trinomial trees d) None of the above
4.
Which of the following is/are true concerning preferred stocks? a) They are somehow similar to subordinated debt, but unlike bond holders preferred share holders could not force a company into bankruptcy if preferred coupons (dividends) were not paid on time b) Many preferred shares provide for cumulative preferred dividend payments having priority over ordinary dividends c) From an issuer’s tax perspective, preferred stocks are a more expensive source of financing than bonds d) All of the above
4
P RM
TM
SELF-STUDY GUIDE – SAMPLE QUESTIONS
PRM Self-Study Resources
T
o meet the demand from PRM candidates for distance learning opportunities, PRMIA has developed a suite of self-study options to make studying for the PRM exam convenient and effective.
EPRM COACH ONLINE TRAINING ePRM Coach is a comprehensive self-study guide for the PRM TM Certification Exam. Designed in accordance with the PRMTM exam structure, the ePRM Coach is equipped with concepts and practices, including: Exhaustive theoretical material supplemented with contemporary case studies Learner friendly courses complete with formulae, definitions, concise summaries, and interactive simulations State-of-the-art simulated learning environment Solved examples, practice exercises and quizzes Mock exams from a proprietary database Timed tests in exam format Personalized results for self assessment Glossary, FAQs, tips center and pocket reference Valuable reference extracts Online access with 24x7 customer support
EPRM DIAGNOSTIC EXAMS ePRM Diagnostic Exams are mock exams designed i n accordance with PRMIA’s exam structure and feature: Simulation of the actual PRM TM Exam State-of-the-art learning environment Timed tests in exam format Personalized results for self-assessment 24x7 online access
www.PRMIA.org
To learn more about all of these PRM self-study resources please visit www.prmia.org or contact [email protected].
The Professional Risk Managers’ International Association · www.PRMIA.org · [email protected]
PRM Self Study Guide – Sample Questions (FIVE OF FIVE)
UPDATED-JANUARY-2013
PRMIA
FROM THE CRADLE TO THE PINNACLE OF YOUR CAREER
A Higher Standard for Risk Professionals
A
s a non-profit, member-led association of professionals, the Professional Risk Managers’ International Association (PRMIA) is dedicated to advancing the standards of the profession worldwide through the free exchange of ideas. We are committed to helping our members achieve these standards through the following resources.
CONNECTION TO A LOCAL CHAPTER NETWORK OF 90,000 MEMBERS WORLDWIDE – PRMIA offers 200 meetings each year are offered through its local chapters, giving members access to the best practices of the global risk profession and to a local network of colleagues. THE PROFESSIONAL RISK MANAGER (PRM) CERTIFICATION – Endorsed by leading universities and businesses, the PRM certification is the global standard for financial risk managers. ASSOCIATE PRM CERTIFICATE – Covers the core concepts of risk management, allowing non-specialists to interpret risk management information and reports, make critical assessments, and evaluate the implications and the limitations of such results. PRMIA MEMBERS HAVE ACCESS TO A WEALTH OF ONLINE RESOURCES cluding a Jobs Board with risk management job openings cities around the world, links to past presentations and papers, and much more.
Inin
PRMIA EDUCATION – Offering classroom instruction and over 700 online professional development courses, all customizable to your personal or corporate needs.
WWW.PRMIA.ORG
J
oin thousands of other risk professionals dedicated to advancing the standards of the risk profession worldwide by becoming a Sustaining member of PRMIA. This exclusive membership provides the highest level of benefits, discounts, and opportunities available. Visit http://www.prmia.org/membership or email [email protected] to become a member or to learn more.
TM
PRM SELF-STUDY GUIDE – SAMPLE QUESTIONS OVERVIEW
T
TM
he PRM certification tests a candidate’s knowledge and understanding of the foundations of finance theory, the financial instruments that provide tools for the mitigation or transfer of risk,
and the financial markets in which instruments are traded and capital is raised. This Self-Study Guide helps in focusing your study on the key Learning Outcome Statements from each chapter. These Learning Outcome Statements form the basis for the questions asked during the PRM
TM
examination. We recommend that you first read the chapter, then review the Learning Outcome Statements, then re-read the chapter with particular emphasis on these points. We recommend strongly that you do not simply read the Learning Outcome Statements and then try to find the information about each in the books as a short-cut way of preparing for the exam. Real-life risk management requires your ability to assemble information from many simultaneous inputs and you can expect that some exam questions will draw from multiple Learning Outcome Statements. TM
Taking the PRM qualification, as well as working as a risk officer, requires a certain amount of mathematical expertise. This is not excessive. Anyone who was passed mathematics studies at advanced high school level, or who has completed the first year of a university degree in a mathematical-based qualification (physics, economics, engineering, etc) should have no problem with the requirements. For others, we recommend that they take tuition in the mathematics required and that they focus on this as the TM
first part of their studies for the PRM . This section of the Study Guide provides some Sample Exam Questions. You may also wish to purchase access to further online Sample Exams via the PRMIA website to assess your readiness. Please note that testing conditions, your state of mind and various factors can make your performance on the actual exams somewhat less strong than on the Sample Exams. If your Sample Exam scores are near to the passing mark, you may wish to study the subject materials even further.
TABLE OF CONTENTS TM
Please remember that the exams of the PRM certification are very challenging.
Overview
p. 1
After all it’s “a higher standard in risk certification” and you would expect nothing
Sample Exam Questions
p. 4
less. There is no guarantee that using the Self-Study Guide, in combination with
Exam I
p. 4
the reading materials and Sample Exams will give you a passing score. But, they
Exam II
p. 7
should all provide you with assistance in doing your best. We wish you much suc-
Exam III
p. 9
cess in your effort to become certified as a Professional Risk Manager!
Exam IV
p. 12
Answers
p. 14
1
WORD DEFINITIONS In this guide, we use Command Words. These are similar to those used by the CFA Institute, with a few additional words, and indicate levels of ability expected from successful candidates on each Learning Outcome Statement. Calculate
To ascertain or determine by mathematical processes.
Characterize
To describe the essential character or quality of.
Compare
To examine the character or qualities of, for the primary purpose of discovering resemblances.
Construct
To create by organizing ideas or concepts logically and coherently.
Contrast
To compare in respect to differences.
Deconstruct
To disassemble the key elements of ideas or concepts.
Define
To set forth the meaning of; specifically, to formulate a definition of.
Demonstrate To prove or make clear by reasoning or evidence; to illustrate and explain, especially with examples.
2
Derive
To obtain by reasoning.
Describe
To transmit a mental image, an impression, or an understanding of the nature and characteristics of.
Differentiate
To mark or show a difference in; to develop different characteristics in.
Discuss
To discourse about through reasoning or argument; to present in detail.
Draw
To express graphically in words; to delineate.
Explain
To give the meaning or significance of; to provide an understanding of; to give the reason for or cause of.
Identify
To establish the identity of; to show or prove the sameness of.
List
To enumerate.
Show
To set forth in a statement, account, or description; to make evident or clear.
State
To express in words.
P RM
TM
SELF-STUDY GUIDE – SAMPLE QUESTIONS
USAGE OF THE CALCULATOR At the exam centre you will have access to an on-line Texas Instrument TI308XS calculator. No other materials may be brought into the exam room with you. It is suggested that candidates purchase the hand-held version (TI-30XS) to fully familiarize themselves with the calculator. User guide for the calculator can be found by clicking on the link: http://education.ti.com/guidebooks/scientific/30xmv/TI30XSMultiViewGuide_en.pdf
For system requirements please click on system requirements and download instructions Note: The practice exam is not accessible on Mac computers. 1. Download the Pearson Vue Tutorial & Practice Exam by clicking here – if the link does not work, cut and paste this in your browser: http://www.pearsonvue.com/athena/PearsonVueTutorialDemo.msi 2. Click "run" if you have that option otherwise click "save file" 3. Open the saved file. (If you clicked "Run" skip this step) 4. Follow the Software Installation prompts 5. Run the installed software 6. Check the box for the Practice Exam 7. Click on the "next" button until you get to the screen with the calculator icon in the upper left hand corner of the screen. 8. Click on the calculator icon to be able practice with the TI308XS calculator.
OVERVIEW
3
SAMPLE EXAM QUESTIONS
T
he following sample questions should give you a flavor for the format and content of the actual exams. They are only part of the length of the actual exams and therefore do not cover all subjects contained in the detailed content descriptions provided in this Study Guide. Questions on any of the subjects listed in the Study Guide documents may appear on the actual exam.
EXAM I – FINANCE THEORY, FINANCIAL INSTRUMENTS AND MARKETS
1.
Assume you live in a CAPM world and the expected return on the market portfolio is 9%, while the risk free rate is 3%. If the beta of stock A is 1.3, the expected return on A is: a) 14.7% b) 12.9% c) 10.8% d) 16.8%
2.
In the valuation of derivatives, the expression "change of measure" means: a) Setting the drift to zero b) Change of volatility c) Both (a) and (b) d) None of the above
3.
Which of the following is true? a) Non-Markovian interest rate processes are usually represented by recombining trees b) Markovian interest rate processes are usually represented by recombining trees c) Non-Markovian interest rate processes are usually represented by trinomial trees d) None of the above
4.
Which of the following is/are true concerning preferred stocks? a) They are somehow similar to subordinated debt, but unlike bond holders preferred share holders could not force a company into bankruptcy if preferred coupons (dividends) were not paid on time b) Many preferred shares provide for cumulative preferred dividend payments having priority over ordinary dividends c) From an issuer’s tax perspective, preferred stocks are a more expensive source of financing than bonds d) All of the above
4
P RM
TM
SELF-STUDY GUIDE – SAMPLE QUESTIONS
PRM Self-Study Resources
T
o meet the demand from PRM candidates for distance learning opportunities, PRMIA has developed a suite of self-study options to make studying for the PRM exam convenient and effective.
EPRM COACH ONLINE TRAINING ePRM Coach is a comprehensive self-study guide for the PRM TM Certification Exam. Designed in accordance with the PRMTM exam structure, the ePRM Coach is equipped with concepts and practices, including: Exhaustive theoretical material supplemented with contemporary case studies Learner friendly courses complete with formulae, definitions, concise summaries, and interactive simulations State-of-the-art simulated learning environment Solved examples, practice exercises and quizzes Mock exams from a proprietary database Timed tests in exam format Personalized results for self assessment Glossary, FAQs, tips center and pocket reference Valuable reference extracts Online access with 24x7 customer support
EPRM DIAGNOSTIC EXAMS ePRM Diagnostic Exams are mock exams designed i n accordance with PRMIA’s exam structure and feature: Simulation of the actual PRM TM Exam State-of-the-art learning environment Timed tests in exam format Personalized results for self-assessment 24x7 online access
www.PRMIA.org
To learn more about all of these PRM self-study resources please visit www.prmia.org or contact [email protected].
The Professional Risk Managers’ International Association · www.PRMIA.org · [email protected]
