Question: Liam, risk manager for Choice Bank, is estimating the aggregate DEAR of the bank's portfolio of assets consisting of Seven-year zero-coupon bonds (B), foreign

Liam, risk manager for Choice Bank, is estimating the aggregate DEAR of

Liam, risk manager for Choice Bank, is estimating the aggregate DEAR of the bank's portfolio of assets consisting of Seven-year zero-coupon bonds (B), foreign currencies (FX), and ordinary shares (EQ) The individual DEARs are $10 770, $9 320 and $33 000, respectively. If the correlation coefficients are presented in the following table. what is the DEAR of the aggregate portfolio? B FX EQ B FX EQ -0.2 0.4 0.1 a. Calculate the DEAR of the aggregate with perfect correlations b. Calculate the DEAR of the aggregate portfolio with the correlation coefficients c. What is the risk reduction for the DEAR portfolio from part a and part b?

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