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 19, 2026

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Question 1

Assume a sovereign bond has a haircut of 5% and is used for a collateral call of $100,000. What amount is credited if a $100,000 bond is submitted, and what amount of bond is needed for $100,000 to be credited, respectively?

A : $100,000; $106,263.

B : $95,000; $105,263.

C : $95,000; $100,000.

D : $105,263; $95,000.

Answer: B

Question 2

If the unconditional default probability of a Ba-rated bond during Year 3 is 1.914% and the probability of survival through Year 2 is 97.413%, the probability of a default during Year 3, conditional on no earlier default, is closest to:

A : 0.673%.

B : 1.914%.

C : 2.587%.

D : 1.965%.

Answer: D

Question 3

Which of the following statements regarding the differences between Basel I, Basel II.5, and the Fundamental Review of the Trading Book (FRTB) for market risk capital calculations is incorrect?

A : FRTB requires the calculation of expected shortfall with a 97.5% confidence level.

B : Both Basel I and Basel II.5 require calculation of VaR with a 99% confidence level.

C : FRTB requires adding a stressed VaR measure to complement the expected shortfall calculation.

D : The 10-day time horizon for market risk capital proposed under Basel I incorporates a recent period of time, which typically ranges from one to four years.

Answer: C

Question 4

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?

A : either 0% or 100%.

B : factor is low, for a given probability of default.

C : beta.

D : is typically higher than the probability of default of a firm in the portfolio.

Answer: A

Question 5

The Merton model is different from Moody’s-KMV Expected Default Frequency approach in two key areas. Which of the following statements refers to one of those differences?

A : The Merton model factors the market value of the borrower’s equity, while Moody’s-KMV model uses book value.

B : The Merton model uses the risk-free rate to calculate the distance to default, while Moody’s-KMV model uses a customized value.

C : Moody’s-KMV model uses a default point with short-term debt and half of long term debt, while the Merton model only uses short-term debt.

D : The Merton model uses historical data to derive a distribution of default frequencies, while Moody’s-KMV model uses standardized expectations.

Answer: C

Page: 1 / 101

Total 503 Questions | Updated On: Feb 19, 2026

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