RiskMetrics The trading book portfolio of financial institution C consists of A coupon bond investment with...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
RiskMetrics The trading book portfolio of financial institution C consists of A coupon bond investment with 5 years to maturity, face value $1 million, coupon rate 3.5%, and coupon is paid once per year; 0.5 million shares of stock X; a foreign cash deposit of 1.5 million. The current market yield for the coupon bond is 2.5%. The institution chooses the bond yield, the USD price of stock X per share and exchange rate (USD/GBP) as three risk factors. It is estimated that the changes in these three factors follow a multivariate normal distribution; the mean for all factors are 0, and standard deviation for these three factors are 0.0087, $0.15 and $0.0092 per , respectively. Also, these three factors has the following correlation matrix 1 0.5 -0.35 0.5 1 -0.45 -0.35 -0.45 1 (a) What is the market value and duration of the coupon bond investment in this portfolio? (b) What is the 99% DEAR of this portfolio? RiskMetrics The trading book portfolio of financial institution C consists of A coupon bond investment with 5 years to maturity, face value $1 million, coupon rate 3.5%, and coupon is paid once per year; 0.5 million shares of stock X; a foreign cash deposit of 1.5 million. The current market yield for the coupon bond is 2.5%. The institution chooses the bond yield, the USD price of stock X per share and exchange rate (USD/GBP) as three risk factors. It is estimated that the changes in these three factors follow a multivariate normal distribution; the mean for all factors are 0, and standard deviation for these three factors are 0.0087, $0.15 and $0.0092 per , respectively. Also, these three factors has the following correlation matrix 1 0.5 -0.35 0.5 1 -0.45 -0.35 -0.45 1 (a) What is the market value and duration of the coupon bond investment in this portfolio? (b) What is the 99% DEAR of this portfolio?
Expert Answer:
Related Book For
Essentials of Corporate Finance
ISBN: 978-1260013955
10th edition
Authors: Stephen Ross, Randolph Westerfield, Bradford Jordan
Posted Date:
Students also viewed these finance questions
-
Managing Scope Changes Case Study Scope changes on a project can occur regardless of how well the project is planned or executed. Scope changes can be the result of something that was omitted during...
-
Given that a $5000 par value bond matures in 16 years with an annual coupon rate of 3.7% paid semi-annually and a yield to maturity of 3.9%, the current market price should be closest to Group of...
-
How do patterns of mental illness differ according to population? Name examples of where one psychological symptom could be interpreted in two different ways based on age/gender/identified problem.
-
One of the bit patterns 01011 and 11011 represents a value stored in excess 16 notation and the other represents the same value stored in two's complement notation. a. What can be determined about...
-
A firm employing 100 workers has an average absenteeism rate of 4%. On a given day, what is the probability of (a) no workers, (b) one worker, (c) more than six workers being absent?
-
Refer to the information in Problem 21-1B. Tohono Companys actual income statement for 2017 follows. Required 1. Prepare a flexible budget performance report for 2017. Analysis Component 2. Analyze...
-
Determine Proper Cash Balance Francis Equipment Co. closes its books regularly on December 31, but at the end of 2010 it held its cash book open so that a more favorable balance sheet could be...
-
Pinehurst Company was formed in Year 1 and experienced the following accounting events during the year: 1. Issued common stock for $18,400 cash. 2. Earned cash revenue of $26,100. 3. Paid cash...
-
You own a local fast-food restaurant and are introducing a new item to your menu - Shakes! You must decide on a pricing strategy for burgers, fries, and shakes. The market you serve contains equal...
-
Let A be a MAtrix A = Calculate a unitary Matrix S so that SAS is a Diagonal matrix. 2-i i 2 -1 2 -1
-
Identify two approaches to conflict resolution proposed in the assertiveness/cooperativeness quadrant model (Thomas, 1976) and provide an example of when each should be used.
-
Identify the aim of the literature review. ? Identify types of review in the literature review.? Identify the elements that should be put in the literature review.?
-
Writing a literature review in the pre or post qualification, will be required to undertake a literature review, either as part of a course of study, as a key step in the research process. Describe...
-
Suppose that Peter created his investment portfolio allocating 60% of his funds in Facebook (Meta Platforms Inc) shares and 40% in General Electric Co shares. The average annual return rate on a...
-
Differentiated Bertrand competition with two symmetric firms - Suppose there are two firms active in the marketFirm A and Firm Band they compete on price. Demand for each Firm i (where i is either A...
-
1. Determine which types of natural disasters are the most common for the region in which you live. 2. Find out which government or private agencies and organizations have information on disasters...
-
Which one of the following anhydrous chloride is not obtained on direct heating of its hydrated chloride? (A) BaCl2 (B) CaClz (C) MgCl2 (D) SrCl2
-
1. Operating and Cash Cycles What impact did this change in payables policy have on BlueSkys operating cycle? Its cash cycle? 2. Operating and Cash Cycles What impact did the announcement have on...
-
Baron Corporation has a target capital structure of 75 percent common stock, 5 percent preferred stock, and 20 percent debt. Its cost of equity is 11.3 percent, the cost of preferred stock is 4.9...
-
Given the following information for Lightning Power Co., find the WACC. Assume the company?s tax rate is 21 percent. 16,000 6.2 percent coupon bonds outstanding, $1,000 par value, 25 years to...
-
Jupiter's is considering an investment in time and administrative expense on an effort that promises one large payoff in the future, followed by additional expenses over a 10-year horizon. The cash...
-
A large company has the opportunity to select one of seven projects-A, B, C, D, E, F, G-or choose the null (donothing) alternative. Each project requires a single initial investment as shown in the...
-
Management is considering three alternatives to satisfy an urgent need. Each of the alternatives will completely satisfy the need, so no combinations have to be considered. The first costs, operating...
Study smarter with the SolutionInn App