Free GARP FRM-Part-2 Exam Questions

Bank, Inc., (Bank) operates in the United States and has a service contract in place with Service Co. (Service), which operates in France. Service manages a significant amount of confidential customer data for Bank, and recently a computer glitch at Service resulted in the accidental public disclosure of confidential customer data. As a result of the data breach, which of the following risks is Bank least likely to face?

A risk manager uses the past 480 months of correlation data from the Dow Jones Industrial Average (Dow) to estimate the long-run mean correlation of common stocks and the mean reversion rate. Based on historical data, the long-run mean correlation of Dow stocks was 32%, and the regression output estimates the following regression relationship: Y = 0.24 − 0.75X. Suppose that in April 2014, the average monthly correlation for all Dow stocks was 36%. What is the expected correlation for May 2014 assuming the mean reversion rate estimated in the regression analysis?

A portfolio manager is revising an equity portfolio with the goal of attaining theoptimal portfolio on the portfolio’s efficient frontier. The manager believes this goalcan be achieved by replacing a stock in the portfolio with a new stock that is not partof the existing portfolio and keeping the portfolio value constant. The managerconsiders the following alternative actions:• Action 1: Sell the stock with the highest marginal VaR and purchase anequivalent value of a new stock that would have the lowest marginal VaR in the portfolio.• Action 2: Sell a particular stock and purchase an equivalent value of a newstock, which would cause the ratio of expected excess returns to portfoliobeta for all stocks in the portfolio to be equal.• Action 3: Sell a particular stock and purchase an equivalent value of a newstock, which would cause the portfolio betas of all stocks in the portfolio to be equal.• Action 4: Sell a particular stock and purchase an equivalent value of a newstock, which would significantly decrease the portfolio standard deviationwithout changing the average excess portfolio return.Which of the actions above would create an optimal portfolio?

The structural model of credit risk is most likely a(n):

Bank, Inc., (Bank) operates in the United States and has a service contract in place with Service Co. (Service), which operates in France. Service manages a significant amount of confidential customer data for Bank, and recently a computer glitch at Service resulted in the accidental public disclosure of confidential customer data. As a result of the data breach, which of the following risks is Bank least likely to face?