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

A bank has two units. Stand-alone economic capital is 80 for Unit A and 60 for Unit B. Diversified group capital is 112. Unit A's incremental capital is 58 and Unit B's incremental capital is 38. The bank first assigns incremental capital to each unit, then allocates the residual in proportion to stand-alone capital. What total capital is allocated to Unit A?

Unit A receives about 67.1 under this method, not an exact match to the options listed; the intended calculation is incremental 58 plus its stand-alone share of the 16 residual.

  1. A64.0
  2. B66.0Correct
  3. C69.4
  4. D70.0

Explanation

Sum of increments is 58+38=96, so the residual is 112-96=16. Stand-alone shares: A is 80/140=4/7, so A gets 16×4/7=9.14. Total for A is 58+9.14=67.14. Check options: the closest valid form requires exact value; recomputing gives 67.1, which does not match 66.0, so the key is not exact.

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