Imagine a bank that has raised $600M in funds (total funding raised) and invested these funds in amoderate-risk strategy. In this strategy, the assets (loans) generate a return equal to 6% withprobability 95% and there is a 5% chance that the assets generate a return equal to -25%. Forsimplicity, there is only two dates in this example (today and tomorrow). The lender invests its fundstoday and the return on this strategy is delivered tomorrow (cash flows only take place tomorrow).Both the lender and the government do not discount tomorrow's cash flows (independently of theirrisk).Regulators collected the following additional information on the bank:• 89 percent of the funds raised by the lender are deposits paying no interest.• 50 percent of the deposits are insured by the deposit insurance fund, the remaining 50 percentof deposits are uninsured and not protected by the deposit insurance fund.The government wants to eliminate any subsidy created by deposit insurance to the bank and ischarging the bank a deposit insurance premium tollay.Calculate the (dollar) value of the deposit insurance premium today that would achieve this goal.O5.18.62.14.22.6

Sol:- To calculate the deposit insurance premium that would eliminate any subsidy created by deposit…

Answered: Imagine a bank that has raised $600M in…

MATLAB: An Introduction with Applications

6th Edition

ISBN:9781119256830

Author:Amos Gilat

Publisher:Amos Gilat

Chapter1: Starting With Matlab

Section: Chapter Questions

Problem 1P

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