9. Read the following sentences and answer the questions. Company A plans to carry out $1 million in 1.5 years. Since this company is exposed to changes in the won-dollar exchange rate, it is trying to calculate the risk by applying the variance covariance method. The dollar-free coupons traded in the market have only one- year maturity and two-year maturity, and the yield of each bond is 5% and 6%. The annual volatility of the two bonds was 0.5% and 0.7%, respectively, and the correlation was estimated to be 0.80. 1) When 1 million dollars are mapped to two bond periods, find the present value of each 2) If a normal distribution is assumed under the 95% confidence level, find the non-variance VaRturncliversified Va) of the above position. 3) If a normal distribution is assumed under the 95% confidence level, find the diversified VaR (VaR) of the above position.
9. Read the following sentences and answer the questions. Company A plans to carry out $1 million in 1.5 years. Since this company is exposed to changes in the won-dollar exchange rate, it is trying to calculate the risk by applying the variance covariance method. The dollar-free coupons traded in the market have only one- year maturity and two-year maturity, and the yield of each bond is 5% and 6%. The annual volatility of the two bonds was 0.5% and 0.7%, respectively, and the correlation was estimated to be 0.80. 1) When 1 million dollars are mapped to two bond periods, find the present value of each 2) If a normal distribution is assumed under the 95% confidence level, find the non-variance VaRturncliversified Va) of the above position. 3) If a normal distribution is assumed under the 95% confidence level, find the diversified VaR (VaR) of the above position.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:9. Read the following sentences and answer
the questions.
Company A plans to carry out $1 million in 1.5
years. Since this company is exposed to
changes in the won-dollar exchange rate, it is
trying to calculate the risk by applying the
variance covariance method. The dollar-free
coupons traded in the market have only one-
year maturity and two-year maturity, and the
yield of each bond is 5% and 6%. The annual
volatility of the two bonds was 0.5% and 0.7%,
respectively, and the correlation was estimated
to be 0.80.
1) When 1 million dollars are mapped to two
bond periods, find the present value of each 2)
If a normal distribution is assumed under the
95% confidence level, find the non-variance
VaRturncliversified Va) of the above position.
3) If a normal distribution is assumed under the
95% confidence level, find the diversified VaR
(VaR) of the above position.
Transcribed Image Text:thousand dollars
50000/1.06= 44,5 thousand dollars
2) 47.6 x 0,005 x 1.65= 0.393,
44,5 x 0,007 × 1,65 = 0,514,
3) VaR
√0.393+0.514+2×0,8×0.393×0,514
= 0,861
9. 1)500004.05=47.6
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