Identify and discuss three criticisms of using the duration

Reference no: EM13502584

1.What is the difference between book value accounting and market value accounting? How do interest rate changes affect the value of bank assets and liabilities under the two methods? What is marking to market?

2.What are the two different general interpretations of the concept of duration, and what is the technical definition of this term? How does duration differ from maturity?

3.A six-year, $10,000 CD pays 6 percent interest annually and has a 6 percent yield to maturity. What is the duration of the CD? What would be the duration if interest were paid semiannually? What is the relationship of duration to the relative frequency of interest payments?

4.What is dollar duration? How is dollar duration different from duration?

5.Identify and discuss three criticisms of using the duration model to immunize the portfolio of a financial institution.

6.In general, what changes have occurred in the financial markets that would allow financial institutions to restructure their balance sheets more rapidly and efficiently to meet desired goals? Why is it critical for an investment manager who has a portfolio immunized to match a desired investment horizon to rebalance the portfolio periodically? What is convexity? Why is convexity a desirable feature to capture in a portfolio of assets?

7.What is meant by market risk?

8.Why is the measurement of market risk important to the manager of a financial institution?

9.What is meant by daily earnings at risk (DEAR)? What are the three measurable components? What is the price volatility component?

10.What is meant by value at risk (VAR)? How is VAR related to DEAR in J.P. Morgan’s RiskMetrics model? What would be the VAR for the bond in problem (4) for a 10-day period? What statistical assumption is needed for this calculation? Could this treatment be critical?

Reference no: EM13502584

Questions Cloud

The volley principle suggests : The volley principle suggests that. Abruptly stopping the use of a sedative for the treatment of insomnia can lead to

Some adjustment of your biological clock : Amanda had an operation on her eyes, but the doctors were unable to save the vision in her left eye. One major change that will affect Amanda's perception is the fact that she will. Which of the following would require some adjustment of your biolo..

Describe how a linear discriminant analysis model works : Describe how a linear discriminant analysis model works. Identify and discuss the criticisms which have been made regarding the use of this type of model to make credit risk evaluations.

How is monte carlo simulation useful in addressing : How is Monte Carlo simulation useful in addressing the disadvantages of back simulation? What is the primary statistical assumption underlying its use?

Identify and discuss three criticisms of using the duration : Identify and discuss three criticisms of using the duration model to immunize the portfolio of a financial institution.

How much of the accounting department costs : The costs will be allocated based on the number of employees using the direct method. Information regarding costs and how much of the accounting department costs will be allocated to the production

What is the one-year forward rate for the period beginning : How does the liquidity premium theory of the term structure of interest rates differ from the unbiased expectations theory? In a normal economic environment, that is, an upward- sloping yield curve, what is the relationship of liquidity premiums for..

How long does the dryer take to dry a full load of clothes : An electric clothes dry operates on a voltage of 220V and draws a current of 20A. How long does the dryer take to dry a full load of clothes that weighs 6.0 kg wet and 3.7kg dry

Case study alternative distribution for ssi : Case Study Alternative Distribution for SSI

User Account

All Pages