8

Given a Finantial Institution whose assets, basically loans, are represented by cash flows to be received from year 1 to year 5

Therefore the institution expects to receive the following cash flows per year from the outstanding loans (Cash Flow Map)

Year 1 200 Million

Year 2 175 Million

Year 3 200 Million

Year 4 150 Million

Year 5 130 Million

Those loans have been given to an specific client segment with a rating that implies that a credit spread of 125 basis points should be added to the Risk Free Zero Coupon Curve

That spread has been computed using Spread = Expected Default Rate (1 - Recovery)

The current Risk-Free Zero Coupon Curve is

1 year Zero Coupon Rate 1%

2 year Zero Coupon Rate 2%

3 year Zero Coupon Rate 2,5%

4 year Zero Coupon Rate 3%

5 year Zero Coupon Rate 3,5%

Which is the value of the assets if the clients rating has worse so that its default rate makes the spread to go from 125 until 525 basis points?

Note: This exercise can also be considered a kind of Stress Test

768,9 Million

855 Million

794,7 Million

695,0 Million