GARP 2016-FRR Exam - Topic 2 Question 22 Discussion

Actual exam question for GARP's 2016-FRR exam

Question #: 22
Topic #: 2

[All 2016-FRR Questions]

A trader for EtaBank wants to take a leveraged position in Collateralized Debt Obligations. If these CDOs can be used in a repo transaction at a 20% haircut, what is the maximum leverage factor for a transaction with the CDOs?

A0.8

B1.5

Show Suggested Answer

Suggested Answer: C

by Page at Jun 16, 2026, 03:47 PM

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Art

3 days ago

I feel like it's about understanding the haircut. I lean towards option D.

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Romana

8 days ago

Yeah, I agree. The leverage factor is crucial here.

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Kent

14 days ago

This question is tricky. I think the haircut really matters.

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Pearly

19 days ago

0.8 seems too low for CDOs, but I guess it checks out.

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Alysa

24 days ago

I thought CDOs had more flexibility than that!

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Elena

29 days ago

Wait, is it really that straightforward?

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Nguyet

1 month ago

Definitely going with option A, makes the most sense.

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Justine

1 month ago

The haircut means you can only leverage up to 80%.

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Desirae

1 month ago

I feel like I might be mixing up the concepts here. The haircut reduces the collateral value, but does that mean we can leverage more? I’m confused about how to apply that to the options.

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Ethan

2 months ago

I practiced a similar question where the leverage was based on the haircut percentage. I think it was something like 1 divided by the haircut percentage, but I can't recall the exact formula.

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Gwenn

2 months ago

I remember something about leverage being calculated based on the haircut. If it's a 20% haircut, then we can leverage 5 times the value, right? So I’m leaning towards option D.

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Alease

2 months ago

I think the haircut means we can only use 80% of the CDO's value, so maybe the leverage factor is 1.25? But I’m not sure how that translates to the options given.

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