There was the question regarding the maturities of two loans one that has collateral and one that has no collateral. I had no idea what to answer. I just thought that the collateral cannot affect the maturity to included in the calculation of losses related to those loses, so I answered that both loans have the same maturity.
Exam Feedback FRM Part 2 (May 2014) Exam Feedback
- Thread starter David Harper CFA FRM
- Start date
Hi @Johnson , I remember struggling a bit with this question but somehow I located the exact page in my mind from the corresponding text (Ashcroft) and I have marked option a.
In hindsight I think this is correct, as I looked in the text and found the following (on page 14):
Seven signs of predatory loan
1. Excessive fees (points and other fees >= 5% )
2. Abusive prepayment penalties
3. Kickbacks to brokers
4. Loan flipping (repeated refinancing to get fee income)
5. Unnecessary products
6. Mandatory arbitration requires a borrower to waive legal remedies in the event that
loan terms are later determined to be abusive
7. Steering and targeting borrowers into subprime products when they would qualify for
prime products.
Notice the 4th sign (which is pretty much the same as option a from the exam question) and sign 7 which is actually "the other way around". That is if the answer options were indeed formulated as such (I am not 100% sure).
In hindsight I think this is correct, as I looked in the text and found the following (on page 14):
Seven signs of predatory loan
1. Excessive fees (points and other fees >= 5% )
2. Abusive prepayment penalties
3. Kickbacks to brokers
4. Loan flipping (repeated refinancing to get fee income)
5. Unnecessary products
6. Mandatory arbitration requires a borrower to waive legal remedies in the event that
loan terms are later determined to be abusive
7. Steering and targeting borrowers into subprime products when they would qualify for
prime products.
Notice the 4th sign (which is pretty much the same as option a from the exam question) and sign 7 which is actually "the other way around". That is if the answer options were indeed formulated as such (I am not 100% sure).
I found it a bit harder than expected, and indeed at least faced 10 50/50 questions and 4 or 5 that I am sure I got wrong. If I had to blindly guess, I would say I probably got around 60 +- 2 answers right, and would be terribly surprised if they were less than 55. However, being so qualitative, I could be wrong.
Other than the questions posted above, there was also one RN vs RW default probabily, where the right answer was that RN is based on the no-arbitrage argument.
@chouchouc, I believe that relative to implied vol, the lognormal out-of-the-money stock option would be over priced and the out of the money currency option would be under priced. The rational being that the equity option shows a volatily skew and it decreases as the option gets out-of-the-money.
Other than the questions posted above, there was also one RN vs RW default probabily, where the right answer was that RN is based on the no-arbitrage argument.
@chouchouc, I believe that relative to implied vol, the lognormal out-of-the-money stock option would be over priced and the out of the money currency option would be under priced. The rational being that the equity option shows a volatily skew and it decreases as the option gets out-of-the-money.
I tend to agree with what @belle6631 said, it didn't make any sense to me, I mean how would a lender get any advantage (and this would be assumed by the term "predatory") in providing borrowers with better (i.e. lower) interest rates? This would mean they would have to pay less interest on their loans as their creditwothiness is better than of that of the subprime borrowers. Hope I am not mixing anything up though...
i understand your views and I hope you're right. Still predatory lending as I see it is lending someone without them meeting the necessary requirements, its not just about the rate. If you lend 1000,000 USD for 6% ( sub prime) or 4 million dollars for 2% ( prime ) what will be the interest paid ? the 2% are higher and thats what the sub prime borrower is paying because they borrowed 4 million when their income only justifies 1 million
[email protected]_1,
U have got awesome memory...even I struggled n located the page but thought the other one was correct..
I got dis also wrong.I hate this forum...increasing my chances of failing with each post
U really have gone to minute details. What answer u had given for the question on basel ratio 133% or 140%.its also tricky one..
U have got awesome memory...even I struggled n located the page but thought the other one was correct..
I got dis also wrong.I hate this forum...increasing my chances of failing with each post
U really have gone to minute details. What answer u had given for the question on basel ratio 133% or 140%.its also tricky one..
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