Skip to content

FRM Part II · FRM Exam Part II · Risk Capital Attribution and Risk-Adjusted Performance Measurement

A bank has total diversified economic capital of 500. Unit A has stand-alone capital of 300 and unit B has 400. Using stand-alone capital pro rata to scale to total capital, how much capital is allocated to unit A?

Unit A receives about 214.3. Stand-alone capitals total 700, so A's share is 300/700, or 42.86 percent, and applying that to the bank's diversified capital of 500 gives 214.3. This pro rata scaling makes allocations sum to total capital.

  1. A300.0
  2. B214.3Correct
  3. C250.0
  4. D285.7

Explanation

Sum of stand-alone = 700. Unit A share = 300/700 = 0.4286. Times 500 = 214.3. Option 300 is unscaled stand-alone; 285.7 wrongly uses 400/700 times 500 (that is B's share, B = 285.7).

Did you get it right without looking?

One question tells you little. A timed set on Risk Capital Attribution and Risk-Adjusted Performance Measurement shows your real accuracy, how long you take and where you lose marks.

Practise Risk Capital Attribution and Risk-Adjusted Performance MeasurementFree diagnostic mock

More Risk Capital Attribution and Risk-Adjusted Performance Measurement questions