Free GARP FRM-Part-2 Exam Questions

A fund manager owns a portfolio of options on TUV, a non-dividend paying stock. The portfolio is made up of 5,000 deep in-the-money call options on TUV and 20,000 deep out-of-the-money call options on TUV. The portfolio also contains 10,000 forward contracts on TUV. Currently, TUV is trading at USD 52. Assuming 252 trading days in a year, the volatility of TUV is 12% per year, and that each of the option and forward contracts is on one share of TUV, which of the following amounts would be closest to the 1-day 99% VaR of the portfolio?

The treasurer of a regional bank is concerned that the bank may not be properlycompensated for the services it provides to its depositors and asks a manager toassess a price for these services. The manager applies cost-plus pricing for alldepository services and uses the following data for pricing the automated tellermachine (ATM) service:• Operating expense per ATM visit: USD 0.25• Estimated overhead cost allocated per ATM visit: USD 0.35• Profit required per ATM visit: USD 0.05• The bank’s target return on capital: 15%What is the correct amount for the bank to charge per ATM visit according to the cost-plus pricing model?

Liz Parker is a junior quantitative analyst who is preparing a report dealing with credit migration. An excerpt of her report contains the following statements:I. Future default probability will likely increase over time, especially for periods far into the future.II. When computing the default probability of a counterparty under a risk-neutral measure, we need to first determine the actual default probability.Which of Parker’s statements is (are) correct?

The CRO of a regional mortgage lender has asked an enterprise risk manager todevelop a set of policies and procedures for the firm’s operational risk reporting. Themanager considers appropriate policies for the governance of the firm’s riskreporting framework and also assesses how the firm should structure its risk reportsfor different stakeholder groups and organizational functions. Which of the followingwould be most appropriate for the manager to recommend?

Brett Doninger recently placed an order to sell a stock when the market price was $42.12. The market was volatile and, by the time Doninger’s broker sold the stock, the price had fallen to $41.88. In the market, this phenomenon is known as: