FRM Part 1 Practice Questions — All Questions

A correlation coefficient can range between:

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

Correlation is bounded between -1 and +1.

The normal distribution is:

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

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

Diversification across imperfectly correlated assets primarily reduces:

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

Combining imperfectly correlated assets lowers overall portfolio variance.

Variance is:

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

Variance equals the standard deviation squared.