# Exam FeedbackNovember 2021 Part 2 Exam Feedback

#### MRC2020

##### New Member
Hey all! I hope this helps.

#### dtammerz

##### Active Member
One other question that bugged me was a UL calculation question where the EAD, PD, LGD, Volatility of LGD inputs were given. The Volatility of the PD was not given but they expected you to calculate the UL. Anyone know what other ways the volatility of the PD can be derived?

Hey bro,
You need to derive the variance with the given PD, remember it’s a Bernoulli random variable so it was sqrt(p(1-p) for the volatility.
Wow - amazed you recalled that bit. I don't think I would have pulled that out of my Part I memory bank even if I tried. Yes, the question mentioned that the PD was Bernoulli.

#### kawal_frm

##### Member
Wow - amazed you recalled that bit. I don't think I would have pulled that out of my Part I memory bank even if I tried. Yes, the question mentioned that the PD was Bernoulli.
this concept isn't just part 1...it is there twice in part 2 credit risk book as well.

in capital structure in banks chapter and spread risk hazard rate chapter

#### dtammerz

##### Active Member
this concept isn't just part 1...it is there twice in part 2 credit risk book as well.

in capital structure in banks chapter and spread risk hazard rate chapter
Ack you are right. I just found it in my notes in [CR-3]

#### Venkat k

##### New Member
One other question that bugged me was a UL calculation question where the EAD, PD, LGD, Volatility of LGD inputs were given. The Volatility of the PD was not given but they expected you to calculate the UL. Anyone know what other ways the volatility of the PD can be derived?

Hey bro,
You need to derive the variance with the given PD, remember it’s a Bernoulli random variable so it was sqrt(p(1-p) for the volatility.
Yes sqrt pd( 1-pd) for volatility of PD.

#### ambrosianas

for this question I rescaled the mean by 252, and the volatility by SQRT(252), and the answer was $1,330,xxx (I think it might have been "C") I think GARP gave this question on different exams but switched the order of the answers... I remember the only answer below 1mm was option A but it sounds like some papers put it as option B. #### kevalamin01 ##### New Member I have just done my part 2 exam. One personal recommendation to David and the team would be to make it clear in the notes and videos that the exam will be 70%ish qualitative in both parts. I was also surprised by the qualitative nature of part 1, which requires a slightly different learning method IMO. #### danghara ##### Member In my opinion exam was relevant to curriculum and evaluate knowledge of candidates very well. #### Abhinav yadav ##### New Member Does anyone remember what's the answer for 1. black swan vs green swan 2. Extreme value theory question #### Abhinav yadav ##### New Member The questions were short and crisp..around 20 numericals and the level of questions were easy to moderate..numericals were from duration gap analysis, Unexpected loss, Var, lognormal Var, questions from interest rate tree, Z spread, cumulative probability, Raroc, Jensen's formulae, dollar weighted value and time weighted value etc...theoretical questions like- impact on subordinated debt, equity, senior debt..Extreme value theory assumption, vasicek model volatility concept, Libor and soft, green swan and black swan, 2 questions from cyber risk, etc..I don't remember much as I gave the exam on 6th December...anyone with good preparation and revision would be at advantage In my opinion the exam was at par with FRM level 1 exam just the syllabus is more for frm.2. Remembering formulaes is the key #### Nicole Seaman ##### Director of FRM Operations Staff member Subscriber I have just done my part 2 exam. One personal recommendation to David and the team would be to make it clear in the notes and videos that the exam will be 70%ish qualitative in both parts. I was also surprised by the qualitative nature of part 1, which requires a slightly different learning method IMO. Hello @kevalamin01 We do not ever see the actual GARP exams, so we can only go by the learning objectives that GARP provides when we are preparing materials. We have no way of knowing if the exams are going to be more qualitative or quantitative from year to year, as we do not have inside information from GARP. We go into each year with the same information that the candidates have, which includes the learning objectives and the study guide. We use candidate feedback, however, that doesn't mean that the exams will be the same each year. #### Hamam ##### Active Member Hello @kevalamin01 We do not ever see the actual GARP exams, so we can only go by the learning objectives that GARP provides when we are preparing materials. We have no way of knowing if the exams are going to be more qualitative or quantitative from year to year, as we do not have inside information from GARP. We go into each year with the same information that the candidates have, which includes the learning objectives and the study guide. We use candidate feedback, however, that doesn't mean that the exams will be the same each year. Just to add to Nicole’s reply, it wouldn’t help to know that the exam is more qualitative or quantitative because you actually never know what GARP can do. The fact that bionic turtle drills the concepts quantitatively is extremely impressive and that’s what makes them superior than other prep providers in my opinion. When you learn concepts quantitatively they help you answer qualitative question easier and help drill the concept better because sometimes in the exam they’ll ask you qualitative questions that are actually based on numerical formulas. Also to further add the conceptual questions on the exam need both qualitative and quantitative thinking in order to answer correctly. All in out in my opinion bionic turtle does an amazing job. I really applaud them (BT)for their efforts. Also the forum I feel is gold because going through it helps drill complex quantitative or qualitative ideas. #### Bluefox21 ##### Member I think what is unfair about the qualitative questions is that they are not necessarily tests of your understanding of a learning objective. If it was this means X because of Y I think the BT materials cannot be beaten. To be fair, I think BT materials are far and away the best regardless. The frustrating piece is from GARP itself where the qualitative questions are more focused on obscure and vague definitions where at least in practice at least two of the answers could be applied (I've worked in Market Risk for over ten years). This makes it more a memory test of the GARP materials which is unfair given the sheer volume of readings. I was able to narrow down most of these types of questions to two answers but had to take a fair few educated guesses and so would be nervous if a few of those go the wrong way. I'm also a native English speaker and would sympathise with candidates who are not as the language can be vague. I'm also convinced the Equity, Mezz, Senior cashflow question was wrong which was frustrating #### kawal_frm ##### Member this is full list of questions I could recall and my answers.  Question Answer 1​ 97.5% ES with 1000 sampling average of 1000 ES - 44m 2​ Daily lognormal var with annual mean and SD given option B 3​ 6 M call option price with bond PV 987.5 and strike price 987 0.65 4​ Calculation on cox ingersoll 55bp I think 5​ The effective rate for Y1 2 and 3 with Y1 19% given Option B 6​ FRTB question qualitative question option C 7​ Extreme value qualitative question 8​ Correlation swap buyer long on the correlation was correct out of 4 statements given 9​ Mean reversion eqn given with .81 mean rev auto corr = .19 10​ 95% CVAR,120 loans of 2mn CNY and 7 defaults @95% given 11​ Distance to default comparing X Y Z 12​ Debt value B+ P-….answered 71.5 13​ price of equity nd1 and Nd2 given ~43m 14​ 3 year survival probability with hazard rate 8% ~78% 15​ 2 year bond spread with Rf = .35% 1.69% 16​ collateraler quant question 0 as collateral required less than minimum transfer amount 17​ who has counterparty risk…related to CLN insvestor CLN investor 18​ LDA quant 2.66 19​ with Netting and without netting calculation was straightforward calculation 20​ UL with UL1 Ul2 and corr .25 given was straightforward calculation 21​ 2m loan loss qualitative question option D 22​ Stressed EL with Stressed PD given was straightforward calculation 23​ hurdle rate calculation 6.50% 24​ ARaroc questio reject as ARAROC #### dtammerz ##### Active Member I think what is unfair about the qualitative questions is that they are not necessarily tests of your understanding of a learning objective. If it was this means X because of Y I think the BT materials cannot be beaten. To be fair, I think BT materials are far and away the best regardless. The frustrating piece is from GARP itself where the qualitative questions are more focused on obscure and vague definitions where at least in practice at least two of the answers could be applied (I've worked in Market Risk for over ten years). This makes it more a memory test of the GARP materials which is unfair given the sheer volume of readings. I was able to narrow down most of these types of questions to two answers but had to take a fair few educated guesses and so would be nervous if a few of those go the wrong way. I'm also a native English speaker and would sympathise with candidates who are not as the language can be vague. I'm also convinced the Equity, Mezz, Senior cashflow question was wrong which was frustrating Not sure if we had a similar question but I was unable to arrive at a number that was presented in the answer choices for the Equity/Mezz/senior cash flow question. #### Bluefox21 ##### Member Not sure if we had a similar question but I was unable to arrive at a number that was presented in the answer choices for the Equity/Mezz/senior cash flow question. Yeah - the correct answer was zero but was not given as an option. See below for anybody curious enough to check I may well be mistaken but I don't think so.... CLO: 30 Loans 1mm each pay SOFR + 120bps SOFR flat at 2% Senior: 22.5mm SOFR + 40bps Mezz: 6.0mm SOFR + 250 BPS Equity: 1.5mm$0 overcollateralisation at start of year. Overcollaterallisation is capped at 150k

How much interest is paid to Equity tranche at end of year 1?

Answer in my opinion should be zero (as over collateralisation gets topped up first) but this was not an option.

#### dtammerz

##### Active Member
Yeah - the correct answer was zero but was not given as an option. See below for anybody curious enough to check I may well be mistaken but I don't think so....

CLO: 30 Loans 1mm each pay SOFR + 120bps

SOFR flat at 2%

Senior: 22.5mm SOFR + 40bps
Mezz: 6.0mm SOFR + 250 BPS
Equity: 1.5mm

\$0 overcollateralisation at start of year. Overcollaterallisation is capped at 150k

How much interest is paid to Equity tranche at end of year 1?

Answer in my opinion should be zero (as over collateralisation gets topped up first) but this was not an option.
The question I got was slightly different to yours. It had different amounts, where there was no OC, and they mentioned that some of the loans had defaulted before interest was due. There were also two SOFR rates given, where I suppose one of them were there to confuse.

Given the information your logic seems to be ok...

#### Hamam

##### Active Member
Just a general question for all:
1) How many questions did you get stuck on?
2) How many questions did you think there were two answers that could be right?

#### Frodo81

##### New Member
Just a general question for all:
1) How many questions did you get stuck on?
2) How many questions did you think there were two answers that could be right?
I remember that I flagged 15 questions... Most of them I could narrow down to 2 options, a few left me clueless. So I hope to have chosen at least 5 of them correctly... However, what concerns me more is that I don't know how many of the questions I did not flag were actually wrong.

#### Hamam

##### Active Member
I remember that I flagged 15 questions... Most of them I could narrow down to 2 options, a few left me clueless. So I hope to have chosen at least 5 of them correctly... However, what concerns me more is that I don't know how many of the questions I did not flag were actually wrong.
Don’t panic brother, I did really well on the first exam and found this one difficult too, that flagging option was useful but at the same time made you second guess a lot lol

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