Free GARP FRM Part I Financial Markets and Products Practice Questions

Practice 294 free Financial Markets and Products questions for GARP FRM Part I.

294 Questions

96 Easy

122 Medium

76 Hard

2026 Syllabus

Sample Questions

Question 1 Easy

What is the Macaulay duration of a 5-year zero-coupon bond?

Solution

D is correct. Macaulay duration is the weighted average time to cash flows, where the weights are the present values of each cash flow as a fraction of price. A zero-coupon bond has a single cash flow at maturity, so 100% of the weight sits at year 5. Macaulay duration therefore equals the maturity: 5.00 years.

Question 2 Medium

A bond is described as a Eurobond. Which characteristic most accurately distinguishes a Eurobond from a domestic bond?

Solution

C is correct.

A Eurobond is a bond issued and sold outside the home country of the currency in which it is denominated. For example, a USD-denominated bond issued and sold outside the United States is a Eurobond (or Eurodollar bond). Eurobonds are typically issued in bearer form and are subject to less regulatory oversight than domestic bonds.

Question 3 Hard

A bond currently trades at par ($100), with a modified duration of 6.5 and convexity of 80. Yields are expected to fall by 75 basis points. Using the duration-plus-convexity approximation, estimate the new bond price.

Solution

A is correct. The second-order Taylor expansion of bond price with respect to yield is

\frac{\Delta P}{P} \approx -D_{\text{mod}} \cdot \Delta y + \tfrac{1}{2} \cdot C \cdot (\Delta y)^2.

With

\Delta y = -0.0075

D_{\text{mod}} = 6.5

, and

C = 80

\frac{\Delta P}{P} \approx -6.5 \cdot (-0.0075) + 0.5 \cdot 80 \cdot (0.0075)^2 = 0.04875 + 0.00225 = 0.05100.

The convexity term adds 0.225% on top of the 4.875% duration estimate. Applying this to the par price:

P_{\text{new}} \approx 100 \cdot (1 + 0.0510) = \$105.10.

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