Free GARP FRM-Part-2 Exam Questions

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

Page: 1 / 101

Total 503 Questions | Updated On: Jan 04, 2026

Add To Cart

Question 1

An analyst at a commercial bank is evaluating how the bank applies historicalsimulation (HS) to estimate VaR and ES. The analyst focuses on the approachesused for weighting past return observations, including the age-weighted, volatilityweighted,correlation-weighted, and filtered HS approaches. Which of the followingstatements is correct regarding the given weighting approach?

A : The filtered HS approach allows the historical returns data to be trimmed orcustomized based on day of the week, magnitude of return, or any othercharacteristic of the data.

B : The correlation-weighted approach uses matrix multiplication to adjust historicalportfolio returns so that these returns reflect current volatilities and current correlations.

C : The volatility-weighted approach adjusts historical returns in the sample byincreasing them if the historical volatility forecast was higher than the currentvolatility forecast, and decreasing them if the historical volatility forecast was lowerthan the current volatility forecast.

D : The age-weighted approach typically specifies that observations that occurred afterthe cutoff date are given an equal weight while observations that occurred beforethe cutoff date are given a weight of zero.

Answer: B

Question 2

All of the following items are generally considered advantages of non-parametric estimation methods except:

A : ability to accommodate skewed data.

B : availability of data.

C : little or no reliance on covariance matrices.

D : use of historical data.

Answer: D

Question 3

A portfolio has an equal amount invested in two positions, X and Y. The expected excess return of X is 9% and that of Y is 12%. Their marginal VaRs are 0.06 and 0.075, respectively. To move toward the optimal portfolio, the manager will probably:

A : do nothing because the information is insufficient.

B : increase the allocation in Y and/or lower that in X.

C : increase the allocation in X and/or lower that in Y.

D : not change the portfolio because it is already optimal.

Answer: B

Question 4

The CRO of a hedge fund asks the risk team to develop a term-structure model forfitting interest rates that is appropriate to use in the fund’s options pricing practice.The risk team is evaluating a Ho-Lee model with time-dependent drift, and a Cox-Ingersoll-Ross model with time-dependent volatility. Which of the following is acorrect description of the specified model?

A : In the Cox-Ingersoll-Ross model, the basis-point volatility of the short-term rate ispresumed to be proportional to the square root of the rate.

B : In the Ho-Lee model, when the short-term rate is above its long-run equilibriumvalue, the drift is presumed to be negative.

C : In the Cox-Ingersoll-Ross model, the volatility of the short-term rate is presumed todecline exponentially to a constant long-run level.

D : In the Ho-Lee model, the drift of the interest rate process is presumed to beconstant.

Answer: A

Question 5

Assuming a loan portfolio of L, a recovery rate of RR, and the percentage of losses on a portfolio less than V(T, X), which of the following formulas is used to estimate credit VaR?

A : L × (1 − RR) × V(T, X).

B : L × (1 − RR) / V(T, X).

C : L × (RR) × V(T, X).

D : V(T, X) / [L × (1 − RR)].

Answer: A

Page: 1 / 101

Total 503 Questions | Updated On: Jan 04, 2026

Add To Cart