FRM Part 1 Practice Questions — All Questions

A correlation coefficient can range between:

• a.0 and 1
• b.-1 and +1✓
• c.0 and infinity
• d.-100 and +100

Correlation is bounded between -1 and +1.

The normal distribution is:

• a.Bimodal by definition
• b.Always skewed right
• c.Symmetric and bell-shaped✓
• d.Uniform

The normal distribution is symmetric and bell-shaped around its mean.

Diversification across imperfectly correlated assets primarily reduces:

• a.Correlation to +1
• b.Return
• c.Portfolio variance✓
• d.The risk-free rate

Combining imperfectly correlated assets lowers overall portfolio variance.

Variance is:

• a.The square of the standard deviation✓
• b.Always negative
• c.The square root of the mean
• d.The same as correlation

Variance equals the standard deviation squared.