Free GARP FRM-Part-2 Exam Questions

Become GARP Certified with updated FRM-Part-2 exam questions and correct answers

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Total 503 Questions | Updated On: Feb 10, 2026

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Question 1

A portfolio manager at a hedge fund is applying the Merton model to estimate the volatility of a non-dividend-paying firm whose equity shares are held in the fund’s portfolio. The manager conducts preliminary analysis on the firm and obtains the following results:• Value of equity: USD 45 million• Value of the firm’s only debt maturing in 5 years: USD 60 million• d1: 3.217790• d2: 3.038905Assuming a constant volatility of firm value, what is the estimate of that volatility?

A : 6%

B : 16%

C : 18%

D : 8%

Answer: D

Question 2

Which of the following statements about portfolio losses and default correlation are most likely correct?I. Increasing default correlation decreases senior tranche values but increases equity tranche values.II. At high default rates, increasing default correlation decreases mezzanine bond prices.

A : I only.

B : Both I and II.

C : II only.

D : Neither I nor II.

Answer: A

Question 3

Which of the following statements is most accurate regarding risks incurred by retail lenders?

A : Refinancing a mortgage when rates decrease is an example of asset valuation risk.

B : Reputation risk is more of a concern for the borrower rather than the lender.

C : Credit risk relates to the potential for a lender to default on their obligation.

D : Business risk relates to the day-to-day operational risks of the business.

Answer: A

Question 4

Country X’s banking regulator established sector-specific cybersecurity requirements. This most likely indicates that Country X is a(n):

A : emerging economy with a homogenous banking system.

B : developed economy with a homogenous banking system.

C : emerging economy with a fragmented banking system.

D : developed economy with a fragmented banking system.

Answer: A

Question 5

Which of the following reasons is least likely a consideration for regulators when imposing fines on financial institutions against financial breaches and violations?

A : To cover the cost of litigation.

B : To deter other firms against manipulative bank practices.

C : To ensure that fines cover at least the benefits of breaches.

D : To signal to other firms to change their compliance practices.

Answer: A

Page: 1 / 101

Total 503 Questions | Updated On: Feb 10, 2026

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