FRM mock 2
Finance Junkie
Posts: 205
Joined: Mon Feb 04, 2013 3:35 pm

FRM mock 2

Postby » Thu Oct 30, 2014 3:23 pm

For a bank, what should be the economic capital so that we can avert 95% of the time the
unexpected loss? Assume the unexpected loss follows the function F(x)= e^((
2/36) .
Select one:
a. 15 million $
b. 11 Million $
c. 12 Million $
d. 16 Million $

Can you please explain the answer and please tell me which book,chapter this belongs to ...i am kinda lost

Finance Junkie
Posts: 947
Joined: Wed Apr 09, 2014 6:28 am

FRM mock 2

Postby edupristine » Fri Oct 31, 2014 8:09 am

For 95% Confidence Interval, Z value = 1.65

Now compare the formula F(x)= e^(-(x-6)^2/36) with F(x) = e^-[(x-mean)/std dev)]^2

Mean Value is 6

Standard Dev is also 6

So, the upper limit = 6+(6*1.65) = 15.9= approx. 16

This question embodies concepts from both Quants (Hypothesis Testing) and credit risk.

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