Reference no: EM13213843
Question 1:
A firm is issuing a two-year debt in the amount of $200,000. The current market value of the assets is $300,000. The risk-free rate is 6 per cent, and the standard deviation of the rate of change in the underlying assets of the borrower is 10 per cent. Using Merton's model, determine the following:
a. The current market value of the loan, and
b. The risk premium to be charged on the loan.
Question 2:
Suppose that each of two investments has a 4% chance of loss of $ 10 million, a 2% chance that of loss of $1 million, and a 94% chance of profit of $1 million. They are independent of each other.
a. What is the VaR for one of the investments when the confidence level is 95%?
b. What is the expected shortfall when the confidence level is 95%?
c. What is the VaR for a portfolio consisting of the two investments when the confidence level is 95%?
d. What is the expected shortfall of for a portfolio consisting of the two investments when the confidence level is 95%?
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Briefly describe how a lake with a limestone bed
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What is the var for a portfolio consisting
: What is the expected shortfall when the confidence level is 95% and what is the VaR for a portfolio consisting of the two investments when the confidence level is 95%?
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