What's new

FRM exam 2012 question 7

saritay

New Member
Hi David,

Question number of 7 of FRM exam 2012:

You are evaluating the credit risk in a portfolio that has loan a and b. you are interested in the risk contribution of each of the loan to the unexpected loss of the portfolio. Given the information in the table below, and assuming that the correlation of default between loan A and loan b is 20%. what is the contribute of loan an to the risk of the portfolio?

Loan A: exposure= $3M. PD=1.5%. volatility of PD=7%. LGD=30% and Volatility of LGD=20%
Loan b: exposure= $2M. PD=3.5%. volatility of PD=12%. LGD=450% and Volatility of LGD=30%


My first question please: Is this applicable to this year's exam?
Can you elaborate on the answer if we do have to know it please.

Best,
S
 

saritay

New Member
Actually I understand the answer.. I just like to know if we have to know this for FRM 2 this year when it is a really a topic from FRM 1.

Best,
S
 

David Harper CFA FRM

David Harper CFA FRM
Staff member
Subscriber
Right, that was noticed last year, we asked GARP and didn't get a reply. I am 80% confident it is a mistake in the Practice Exam (the practice exams contain several mistakes, on average), such that I would not expect Ong's UL on P2. In some cases, there is a reasonable expectation the candidate should be able to employ P1 concepts (e.g., statistics, rate compound frequency, value at risk), but I doubt P2 would test you on Ong's UL function, which is a not a natural equation for most of us (and remains somewhat unique). Thanks,
 
Top