Exam Question Errors (Level I)

[troubleshooter]

Hello: I just wanted to share some thoughts I had about the L1 exam. Overall I think I did okay but I was very disappointed at the quality control GARP has in place to ensure that questions are flawless. I highly recommend GARP take a full audit of its operational risks, considering the kind of business it is at. My list of Level 1 Exam Question Paper flaws.

1. There was a question on BOX SPREAD. This is not in the currriculum. I have double checked to make sure that this should not have been tested upon.
2. There was a question on the probability tree (Baye's theorem, most likely) which was incomplete. The last part of the question did not specify which route the probability tree took so I had to leave it come back to it later and I had to guess.
3. Minor issue but worth mentioning - one of the questions had 4 choices i. ii. ii. iv and no iii. Easy to guess that the third one has to be iii but someone is not doing his/her job.

Overall, compared to the quality of the questions in CFA, GARP FRM has a long way to go. I am still scratching my head how could they mess up questions like that. It's kind of cruel to put people through that. Feel free to share your feedback on Exam Paper bloopers.

-NT

 

[mdecav]

I wholeheartedly second that. Don't they have a separate person review the exam for errors before they send them to the printers?

Also, I've never seen a Scantron with a carbon copy so that if you make a mistake you can't erase the circle and you write in the letter. Very unusual.

 

[mdecav]

Just to add to the issues above.

NEVER, NEVER, EVER should an answer to one question on an exam be needed to answer a second. Its fine to have a two-parter on an exam, just as long as they're not intertwined like it was on Saturday. CFA never does this, which is why they're on top of their game. Its fine to do in practice, but not on an exam. Case in point: the two-part binomial tree question.

Background: 12% risk free rate, up and down magnitude of 20% each, 50 price, 52 strike, 6 month option, two periods. The first question asked for the up probability in a risk-neutral market. I screwed up because I thought the down magnitude was 1/1.2 = .8333, but instead was .8, so I had to make a guess at the answer. Fine, which I think I guessed correctly.

The second part asked for the price of the American put using the tree. IF YOU DIDN'T KNOW THE ANSWER TO THE FIRST QUESTION, YOU COULDN'T GET THE ANSWER TO THE SECOND EVEN IF YOU KNEW HOW TO DO THE PROBLEM. That is a major no-no. I was aware of the possibility of early exercise in the first-period down node - which was the case in this example - but because I didn't know to use .8 as the down magnitude I couldn't come close to an answer.

 

[troubleshooter]

I remember having the same issue with the question you described. I was not able to come up with any of the options. So I just chose $2 as a guess as it was S-X at the starting node. I wonder what the true answer really is.

 

[mdecav]

I think its in the fours because the early exercise option in the lower middle node boosts the price of the put. The second I read the tree was for an American put I was on the lookout for early exercise. At the time I didn't recognize this in the answers... two answers were in the twos, two in the fours - giveaway: the "four" answers include the exercise.