A Bank has the following Credit Portfolio Loan Expected Portfolio Volatility Amount Return Credit A $1.0 10.0% 1.0% Credit B $1.5 12.0% 2.0% Credit C $3.0 14.0% 3.0% Credit D $0.5 16.0% 4.0% Credit E $0.2 18.0% 5.0% Credit F $2.0 20.0% 6.0% What is the risk in decimals on the bank's loan portfolio if loan returns are correlated as follows? (Round to two decimals) Credit A Credit B Credit C Credit D Credit E Credit F Credit A 0.4 -0.5 0.2 -0.3 -0.8 Credit B 0.7 0.6 0.5 0.4 Credit C -0.1 -0.8 -0.9 Credit D 0.2 0.4 Credit E -0.2 Credit F

A Bank has the following Credit Portfolio Loan Expected Portfolio Volatility Amount Return Credit A $1.0 10.0% 1.0% Credit B $1.5 12.0% 2.0% Credit C $3.0 14.0% 3.0% Credit D $0.5 16.0% 4.0% Credit E $0.2 18.0% 5.0% Credit F $2.0 20.0% 6.0% What is the risk in decimals on the bank's loan portfolio if loan returns are correlated as follows? (Round to two decimals) Credit A Credit B Credit C Credit D Credit E Credit F Credit A 0.4 -0.5 0.2 -0.3 -0.8 Credit B 0.7 0.6 0.5 0.4 Credit C -0.1 -0.8 -0.9 Credit D 0.2 0.4 Credit E -0.2 Credit F

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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Consider a bank with the following balance sheet (M means million):Assets Value Duration of the Asset Convexity of the Asset 5yr bond bought at a yield of 3.4% (lending money) $550M 4.562 12.026 12yr bond bought at a yield of 4% (lending money) $800M 9.453 53.565 Liabilities Value Duration of the Liability Convexity of the Liability2yr bond sold at a yield of 2.4%(borrowing money) $300M 1.941 2.384 4yr bond sold at a yield of 2.8%(borrowing money) $500M 3.759 8.206 If the interest rates go up by 1%, using the duration and convexity rule to determine the networth of the bank and the equity to asset ratio
Consider a bank with the following balance sheet (M means million): Assets Value Duration of the Asset Convexity of the Asset 5yr bond bought at a yield of 3.4%(lending money) $550M 4.562 12.026 12yr bond bought at a yield of 4%(lending money) $800M 9.453 53.565 Liabilities Value Duration of the Liability Convexity of the Liability 2yr bond sold at a yield of 2.4%(borrowing money) $300M 1.941 2.384 4yr bond sold at a yield of 2.8%(borrowing money) $500M 3.759 8.206 Calculate the duration and convexity of the both asset and liability sides
Consider a bank with the following balance sheet (M means million): Assets Value Duration of the Asset Convexity of the Asset $550M 12.026 Syr bond bought at a yield of 3.4% (lending money) 4.562 12yr bond bought at a yield of 4% $800M 9.453 53.565 (lending money) Value Duration of the Liability Convexity of the Liability Liabilities Zyr bond sold at a yield of 2.4% $300M 1.941 2.384 (borrowing money) 4yr bond sold at a yield of 2.8% (borrowing money) $500M 3.759 8.206 a) Calculate the equity (total asset - total liability) to asset ratio of the bank (Hint: equity to asset ratio = total equity/total asset) ( b) Calculate the duration and convexity of the both asset and liability sides; c) If the interest rates go up by 1%, using the duration and convexity rule to determine the net worth of the bank and the equity to asset ratio; d) Inc's scenario, to maintain the equity to asset ratio at 40% which is required by the regulation, the bank decides to raise cash (zero duration and zero…
11) Boom and Slump are considered in which of the following 5 C’s of Credit? a. Character b. Collateral c. Conditions d. Capital
Consider a bank with the following balance sheet (M means million): Assets Value Duration of the Asset Convexity of the Asset Syr bond bought at a yield of 3.4% $55OM (lending money) 4.562 12.026 12yr bond bought at a yield of 4% (lending money) $80OM 9.453 53.565 Liabilities Value Duration of the Liability Convexity of the Liability Zyr bond sold at a yield of 2.4% (borrowing money) 4yr bond sold at a yield of 2.8% (borrowing money) $300M 1.941 2.384 $500M 3.759 8.206 a) Calculate the equity (total asset- total liability) to asset ratio of the bank (Hint: equity to asset ratio = total equity/total asset) b) Calculate the duration and convexity of the both asset and liability sides; ( c) If the interest rates go up by 1%, using the duration and convexity rule to determine the net worth of the bank and the equity to asset ratic d) Incys scenario, to maintain the equity to asset ratio at 40% which is required by the regulation, the bank decides to raise cash (zero duration and zero…
(Following Rates are Quoted) Company A Company B Credit Rating A B Fixed Rate 6% 8% Floating Rate LIBOR+1% LIBOR+1.5% Which company has a relative advantage and in which market? Which company has an absolute advantage and in which market Company A wants to borrow floating. Company B wants to borrow fix. Build a proper SWAP that benefit the two companies.
If the loan interest rate adjusts every quarter and the deposit interest rate adjust every six months, the risk of interest rate from the different frequencies of rate adjustments is called Repricing risk O yield -curve risk basis point risk O default risk QUESTION 5 If the loan interest rate is 4 % mark-up on the 6 month treasury bill and the deposit interest rate is 1% mark-up on the 3 month treasury bill, the risk of interest rate like this is called
Question 10 Use the following information to answer the question(s) below. Consider the following information regarding corporate bonds: Rating Average Default Rate 0.0% 0.1% 0.2% Recession Default Rate 0.0% 1.0% 3.0% AAA AA A BBB BB B CCC 0.5% 2.2% 5.5% 12.2% 3.0% | 8.0% 16.0% 48.0% Average Beta 0.05 0.05 0.05 0.10 0.17 0.26 0.31 Nielson Motors plans to issue 10-year bonds that it believes will have an BBB rating. Suppose AAA bonds with the same maturity have a 4.1% yield. Assume that the market risk premium is 4% and the expected loss rate in the event of default on the bonds is 73%. The yield that these bonds will have to pay during a recession is closest to (%) (2 decimal places):
28. An investor buys a T-bill at a bank discount quote of 4.60 with 160 days to maturity. The investor's actual annual rate of return on this investment was 4.76% 4.89% 4.66% 5.00%
The time value of money is used in calculating bond prices because: Group of answer choices A - The company might choose to repay the bonds prior to their maturity date B - Bond investors receive future payments and purchase bonds with current dollars C - The amount to be repaid at maturity will change as market rates change D - Cash interest payments to bondholders will change as market rates change
Given the following calculate the Cost of Equity. Beta Equity Risk Premium Pre-tax Yield on Debt Return on the Bond Market Return on the Stock Market Risk Free Rate Tax Weight of Debt in the Total Capital Structure Weight of Equity in the Total Capital Structure 1.5 5.5% 6.0% 4.5% 8.0% 2.5% 25.0% 25.0% 75.0%
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