Free Access GARP.2016-FRR.v2022-02-19.q125 Practice Test (Page 3)

Question 6

What is generally true of the relationship between a bond's yield and it's time to maturity when the yield curve
is upward sloping?

A.The longer the time to maturity of the bond, the higher its yield.

B.The shorter the time to maturity of the bond, the higher its yield.

C.The longer the time to maturity of the bond, the lower its yield.

D.There is no relationship between the two

Question 7

In its VaR calculations, JPMorgan Chase uses an expected tail-loss methodology which approximates losses at
the 99% confidence level. This methodology consists of two subsequent steps to estimate the VaR. Which of
the following explains this two-step methodology?

A.After VaR is computed at the 97% confidence level, the expected tail loss in excess of that confidence
level is determined, which is then compared with the VaR estimate at the 99% confidence level.

B.After VaR is computed at the 99% confidence level, the expected tail loss in excess of that confidence
level is determined, which is then compared with the VaR estimate at the 98% confidence level.

C.After VaR is computed at the 1% confidence level, the expected tail loss in excess of that confidence
level is determined, which and is then compared with the VaR estimate at the 98% confidence level.

D.After VaR is computed at the 99% confidence level, the expected tail loss in excess of that confidence
level is determined, which is then compared with the VaR estimate at the 99% confidence level.

Question 8

Which one of the following four statements regarding floating rate bonds is incorrect?

A.Floating rate bonds are very sensitive to changes in interest rates.

B.Floating rate bonds have coupon payments tied to floating interest rates or floating interest rate indexes.

C.Floating rate bonds only have a small degree of interest rate risk.

D.Floating rate bonds typically have less price risk than fixed rate bonds.

Question 9

Which one of the following four statements on the seniority of corporate bonds is incorrect?

A.Senior bonds typically have lower credit spreads than junior bonds with the same maturity and payment
characteristics.

B.Junior bonds always pay higher coupons than subordinated bonds.

C.In bankruptcy, holders of senior bonds are paid in full before any holders of subordinated bonds receive
payment.

D.Seniority refers to the priority of a bond in bankruptcy.

Question 10

Which one of the following four statements describes the advantage of using delta-gamma method of mapping
options positions over delta-normal method?
Delta-gamma method

A.Fully captures option price risk, particularly for extreme price movements.

B.Approximates more accurately the non-linear relationship of option values and risk.

C.Converts options into underlying factor risks according to their deltas and the gammas to those factors.

D.Overstates the risk of long option positions, but understate the risk of short option positions.

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