Finance Homeork question/quote, Financial Management

Assignment Help:
The management of Border Bank has asked you to help with it with its market risk calculations. It has compiled the following data on its financial assets:

• $500 million of amortizing home mortgage loans with an average maturity of 15 years and an average loan rate of 5% (assume annual end-of-the year payments). The current yield on comparable loans is 4%. The volatility of daily changes in yields is averaging 50 basis points. Note that you will need to determine the annual payment required for the loans prior to calculating their market value and value at risk.

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

• $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.

Using a 99 percent confidence interval (2.33 standard deviations), what is the 1-day Value at Risk (Daily Earnings at Risk) for each type 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 calculate the market value and the modified duration for each type of asset based on their expected cash flows before estimating their VaRs. For the overall bank VaR calculations, assume 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 it is 0.60.

Related Discussions:- Finance Homeork question/quote

What is current asset, Q. What is Current Asset? Current Asset - ASSET ...

Q. What is Current Asset? Current Asset - ASSET which one can reasonably expect to convert into cash, sell or consume in operations within a single operating cycle or within a

Explain the benefits of benchmarking, Explain the Benefits of benchmarking ...

Explain the Benefits of benchmarking - Better understanding of business, competition and customers. - Improves business performance and discourages complacency. - Good wa

Financial statement, A company commissioned a valuation of its land and bui...

A company commissioned a valuation of its land and buildings for inclusion in its financial statements. The valuation document contained the following details:

Forward rates, Now that we have seen how default-free theoretical rat...

Now that we have seen how default-free theoretical rate can be extrapolated from the treasury yield curve, let us see how some other additional information, like forwar

Operating cycle, applicability of an operating cycle in vegetable growing b...

applicability of an operating cycle in vegetable growing business

Prepare general journal entries, On 1 July 2006, Goela Ltd was registered a...

On 1 July 2006, Goela Ltd was registered and offered 1 000 000 ordinary shares to the public at an issue price of $1.70, payable as follows: 50c on application (due 31 August)

Just-in-time inventory management, Q. Just-in-time inventory management? ...

Q. Just-in-time inventory management? It considerably improves the short-term liquidity of the business with a maximum financing requirement of $138533 rather than $155640. The

Risks and advantage when a company has operation in country, What are some ...

What are some of the primary advantages when a corporation has operations in countries other than its home country?  What are some of the risks? Foreign operations may decrease a

Interest rate anticipation strategies, Active bond management depends...

Active bond management depends on an economic scenario in order to forecast the movements of yield curve. A portfolio manager skillfully builds a portfolio wit

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd