Ask Question, Ask an Expert

+1-415-315-9853

info@mywordsolution.com

Ask Financial Management Expert

problem 1: The management of Border Bank has asked you to help with it with its market risk computations. It has compiled the given data on its financial assets:

A) $500 million of amortizing home mortgage loans with an average maturity of 15-years and an average loan rate of 5% (suppose annual end-of-the year payments). The present yield on comparable loans is 4%. The volatility of daily changes in yields is averaging 50 basis points. Note that you will require finding out the annual payment needed for the loans prior to computing their market value and value at risk.

B) $300 million of non-amortizing commercial loans with an average maturity of 4-years and an average lending rate of 7%. The present yield on comparable loans is 6%. The volatility of daily change in yields is averaging 40 basis points.

C) $200 million of corporate bonds with an average maturity of 10-years and an average coupon rate of 6%. The current yield on comparable bonds is 5%. The volatility of daily changes in yields is averaging 30 basis points.

By using a 99 percent confidence interval (2.33 standard deviations), what is the 1-day Value at Risk (Daily Earnings at Risk) for each kind of asset and what is the 1-day Value at Risk for the bank overall? What would be the 15-day Value at Risk for the bank? Note that you will first need to compute the market value and the modified duration for each kind of asset based on their expected cash flows before estimating their VaRs. For the overall bank VaR computations, suppose that the correlation between the amortizing mortgage loans and the commercial loans is 0.80, between the mortgage loans and the corporate bonds it is 0.70 and between the commercial loans and the corporate bonds is 0.60.

Financial Management, Finance

  • Category:- Financial Management
  • Reference No.:- M95279

Have any Question? 


Related Questions in Financial Management

The green s amp l originated a pool containing 75 ten-year

The Green S & L originated a pool containing 75 ten-year fixed interest rate mortgages with an average balance of $100,000 each. All mortgages in the pool carry a coupon of 12 percent. (For simplicity, assume all mortgag ...

I which three statements result as part of the short-term

I. Which three statements result as part of the short-term (operating) financial planning process? II. What is the purpose of the cash budget? What role does the sales forecast play in its preparation? III. Briefly descr ...

Hart enterprises recently paid a dividend d0 of 325 it

Hart Enterprises recently paid a dividend, D0, of $3.25. It expects to have nonconstant growth of 35% for 2 years followed by a constant rate of 5% thereafter. The firm's required return is 19%. What is the horizon or te ...

You are considering opening a new plant the plant will cost

You are considering opening a new plant. The plant will cost $500 million upfront. After that, it is expected to produce free cash flows that will last forever. The cash flow is expected to start at  $30 million in the f ...

You are given the following information state of economy

You are given the following information: State of Economy Return on Stock A Return on Stock B Bear .109 −.052 Normal .108 .155 Bull .080 .240 Assume each state of the economy is equally likely to happen. Calculate the ex ...

Why is it important to know how individual securities

Why is it important to know how individual securities affect portfolio risk? How can portfolio risk be mitigated and why is this important?

Consider each stocks average return standard deviation and

Consider each stock's average return, standard deviation, and coefficient of variation. (Round your answers to 2 decimal places.) Molson Coors, International Paper, (YEAR 1) 16.8%, 4.6, (Year 2) -8.5, -17.6, (Year 3) 37. ...

1 the differential between the nominal interest rate of a

1. The differential between the nominal interest rate of a long-term fixed rate debt instrument and the real rate is a) the risk premium. b) the expected rate of inflation. c) the risk premium plus the expected rate of i ...

In february of 2000 the nasdaq composite index peaked at a

In February of 2000 the NASDAQ Composite index peaked at a level of 4,698 ?(just before the Tech Bubble?popped). In February of 2006 it was at a level of 2,012. The NASDAQ index has historically grown at an average annua ...

At an output level of 18000 units you have calculated that

At an output level of 18,000 units, you have calculated that the degree of operating leverage is 2.10. The operating cash flow is $46,500 in this case. Ignore the effect of taxes. What will be the new degree of operating ...

  • 4,153,160 Questions Asked
  • 13,132 Experts
  • 2,558,936 Questions Answered

Ask Experts for help!!

Looking for Assignment Help?

Start excelling in your Courses, Get help with Assignment

Write us your full requirement for evaluation and you will receive response within 20 minutes turnaround time.

Ask Now Help with Problems, Get a Best Answer

Section onea in an atwood machine suppose two objects of

SECTION ONE (a) In an Atwood Machine, suppose two objects of unequal mass are hung vertically over a frictionless

Part 1you work in hr for a company that operates a factory

Part 1: You work in HR for a company that operates a factory manufacturing fiberglass. There are several hundred empl

Details on advanced accounting paperthis paper is intended

DETAILS ON ADVANCED ACCOUNTING PAPER This paper is intended for students to apply the theoretical knowledge around ac

Create a provider database and related reports and queries

Create a provider database and related reports and queries to capture contact information for potential PC component pro

Describe what you learned about the impact of economic

Describe what you learned about the impact of economic, social, and demographic trends affecting the US labor environmen