Free GARP FRM-Part-2 Exam Questions

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

Historical data shows that over a one-year period, there is a 91.93% chance that a company rated BBB will keep its rating. What is the percentage chance this rating will remain unchanged over a four-year period?

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?

In backtesting a value at risk (VaR) model that was constructed using a 97.5% confidence level over a 252-day period, how many exceptions are forecasted?

An analyst at a financial institution has been asked to assess the quality ofestimating credit VaR (CVaR) of a homogenous portfolio of firms (credits) using thesingle-factor model, under which default correlation varies with the firm’s beta to themarket factor. The analyst examines the portfolio under the following assumptions:• There are 1,000 firms (credits) in the portfolio.• Each firm represents 0.1% of the portfolio.• There is no idiosyncratic risk.• Loss given default is the same for each firm in the portfolio.Based on the information provided, which of the following observations, if made bythe analyst, would be correct regarding the application of the single-factor model and its parameters?