Mistakes in Model Answers 2008 prac exams

[kieran]

I find some of the model answers to the 2008 practice exams are incorrect. Of course this could just be my misunderstanding but I'd like to verify with others:

For instance exam 2 question 20:

Why is the value of the coupon 40 and not 4 as in 4% of 100. Likewise the principal payment should be 104 Yen. This will completely change the answer. I get an answer of 102.85/115-10.213 = -9.319

For exam 2 question 18:
I am certain the answer is a and not b. In b, Z is calculated as -1.96+8<x<1.96+8. I would multiply the standard deviation of 10 on -+1.96. (I suspect the number of observation, 100, might have something to do with it although the model answer is unclear).

Also in exam 2 question 23:
a is correct. Understandable, but d should then also be correct. It depends on the correlation of the loan and the portfolio, which could be either high or low. The risk officer could be wrong!

Is there any insight into these problems I'm having? If these are real errata can one expect mistakes in the actual exam?

 

[kieran]

I'll add one more to the list and this one is definitely a mistake:

Exam 2 question 39

The question is, "Which of these statements correctly describes commercial banking?"

1 commercial banking is more exposed to operational risk than credit risk
2 commercial banking is less exposed to market risk than operational risk
3 commercial banking is more exposed to credit risk than market risk

The options:

a) 1
b) 2&3;c) 3
d) 1&3;I say b)
The model answer says a) and then goes on to contradict itself

"Only answer a contains the sole incorrect statement"
"Statement 1 is the only incorrect statement"
"Statements 1 and 2 are in fact correct"

The model answer is very confused, the question asks for the correct statements, although it thinks it is looking for the incorrect statements. This kind of error worries me, were the 2006 FRMs marked incorrectly on this?

 

[David Harper CFA FRM]

Hi kieran:

Thanks for adding question, esp. flaws, to the forum. I agree that 3/4 are flawed:

#20: I get -9.3 also. The question has typo: it means 1000 MM yen (because exchange rate is 115, so yen will be in the neighborhood of 100X) then, if yen = 1000, answer of -1.27 will correct

#18: The answer given is correct. The interval = (10) +/- (normal deviate = 1.96 @ two-tailed)*(population standard deviation = 10)/SQRT[100]. The standard error (due to CLT) = 10/SQRT[100] = 1.

#23: I agree with you, (d) looks logically like (a)

#39: Yikes, total mess. Also, unclear how that comes from the assignment. Don't even get me started...

"were the 2006 FRMs marked incorrectly on this?" I didn't think any of these were actual exams, recent actual exams to my knowledge, i don't think they've *ever* been released (2006, 2007)

David

 

[kieran]

Thanks David,

I realized my mistake in that second question, your formula sheet contains the z-stat I should have used. I hope the conveners are more careful with the actual exam. I imagine they would see consistent incorrect answers in marking and might pick up on mistakes. Although it may be a shot in the dark I will email GARP about the mistakes. It wont make much of a difference but perhaps there will be some last minute vetting! (Or a more thoroughly edited set of prac exams for next year).

Your site offers a fantastic service, I became aware of it too late to take up on it. If things go pear for me I'll be sure to use you next year as a course provider!

 

[David Harper CFA FRM]

Kieran,

Thank you for your kind words, thanks for liking the site. I share your concern, deeply; I've spoken with my GARP contact yesterday and I just called them again today exactly on this issue (b/c today, another incorrect sample question from 2008 has been uploaded to the forum).

I agree with you, it's too late to impact 2008, but GARP absolutely needs to get this feedback for 2009. So please, please do send your email. Or, IMO, there is a reputational risk problem here. Candidates spend too much time and money; they deserve (i) an accurate test, and (ii) a test that is faithful to the assignments. My specific problem is that, to the degree a test were to be inaccurate (and note two dimensions to accuracy: correctness plus faithfulness to the assignments), that inaccuracy would be a bias against my more diligent customers (i.e, who start early, who are careful). It would be, as we say in derivatives, "wrong-way" risk. So, as far as i am concerned, this is my problem, too....

(love the expression "go pear," I will be stealing that from you!)

David