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 dividend for should i inc is currently 19 per share it

The dividend for Should I, Inc., is currently $1.9 per share. It is expected to grow at 24 percent next year and then decline linearly to a 6 percent perpetual rate beginning in four years. If you require a 21 percent re ...

1 there is a n relationship between the value of

1. There is a (n) ________relationship between the value of outstanding bonds and interest rates. A. direct B. inverse C. positive D. no relationship exists 2. One half of a percent is equal to ______. A. 25 basis points ...

Learning objective analyze the impact of business

Learning Objective : Analyze the impact of business transactions on accounts. Robinson Investments, Inc., began by issuing common stock for cash of $200,000. The company immediately purchased computer equipment on accoun ...

Barans manufacturing is developing the incremental cash

Barans Manufacturing is developing the incremental cash flows associated with the proposed replacement of an existing stamping machine with a new, technologically advanced one. Given the following costs related to the pr ...

Paper requirementsyou will write a 2 - 3 page paper single

Paper Requirements You will write a 2 - 3 page paper, single spaced, one inch margins, 12-pt font, with double space between paragraphs. Your paper should comment on the financial statements for your company as they rela ...

Assume that the companys dividends per share are projected

Assume that the company's dividends per share are projected to grow at 2% each year, its next year's dividends per share is at $1.20, and its cost of equity capital 5%. estimate the company's per share stock price. pleas ...

Imagine that you have just been appointed treasurer of a

Imagine that you have just been appointed treasurer of a consumer goods company. It manufactures only in the United Kingdom, but exports over 50 per cent of its sales. As the market is an international one, you face the ...

Book depot inc sells on terms of 215 net 90 what is the

Book Depot Inc. Sells on terms of 2/15, net 90. What is the implicit coast of trade credit under these terms? Use a 365 day year. Round the answer to two decimal places in percentage form.

1 future value how much will you have in 36 months if you

1. Future Value. How much will you have in 36 months if you invest $75 a month at 10% interest? 2. Present Value. Cheryl wants to have $2,000 in spending money to take on a trip to Disney World in three years. How much m ...

Broussard skateboards sales are expected to increase by 15

Broussard Skateboard's sales are expected to increase by 15% from $8 million in 2013 to $9.2 million in 2014. Its assets totaled $3 million at the end of 2013. Broussard is already at full capacity, so its assets must gr ...

  • 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