PRIN.OF CORP.FINANCE-CONNECT ACCESS
13th Edition
ISBN: 2810023360757
Author: BREALEY
Publisher: MCG
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Chapter 23, Problem 12PS
Summary Introduction
To determine: The scenario in which company X doesn’t default but company Y does.
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Assume you have the following asset and liability in your Balance Sheet:Asset - Bond AModified Duration = 2.6 yearsValue= RM1.5 millionAAFARLiability - Bond BModified Duration = 3.1 yearsValue= RM1.0 milliona. Calculate the duration gap. b. What is the expected change in Net Worth if interest increases by 1%?attachment.
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Assume you have the following asset and liability in your Balance Sheet: Asset - Bond A Modified Duration = 2.6 years Value = RM1.5 million Liability - Bond B Modified Duration = 3.1 years Value = RM1.0 million
a. Calculate the duration gap.
b. What is the expected change in Net Worth if interest increases by 1%? Assume previous interest is 10%
c. What should or could you to achieve immunised balance sheet?
Note: Please show all workings.
Assume you have the following asset and liability in your Balance Sheet: Asset - Bond A Modified Duration = 2.6 years Value = RM1.5 million Liability - Bond B Modified Duration = 3.1 years Value = RM1.0 million
a. Calculate the duration gap.
b. What is the expected change in Net Worth if interest increases by 1%?
c. What should or could you to achieve immunised balance sheet?
Note: Please show all workings.
Chapter 23 Solutions
PRIN.OF CORP.FINANCE-CONNECT ACCESS
Ch. 23 - Expected yield You own a 5% bond maturing in two...Ch. 23 - Bond ratings In February 2018, Aaa bonds yielded...Ch. 23 - Bond ratings It is 2030 and the yields on...Ch. 23 - Prob. 4PSCh. 23 - Default option Other things equal, would you...Ch. 23 - Prob. 6PSCh. 23 - Prob. 7PSCh. 23 - Default option Digital Organics has 10 million...Ch. 23 - Prob. 9PSCh. 23 - Prob. 10PS
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- (d) Which of the following investments has the highest annual percentage yield (APY)? (Assume that all CDs are of equal risk.) Bank A that pays 8 percent interest compounded quarterly.Bank B that pays 8 percent compounded monthly.Bank C that pays 8.25 percent annually Show your working to justify your decision.arrow_forwardSuppose that a bank has made a large number of loans of a certain type. The one-year probability of default on each loan is 1.5% and the recovery rate is 30%. Tha bank uses a Gaussian copula for time to default. Use Vasicek model to estimate the default rate that we are 99.5% certain will not be exceeded. Assume a copula correlation of 0.2.arrow_forwardAssume that a bank has a total of $20million of small exposures of a certain type with one year probability of default at 5% and the recovery rate averages 30%. Estimate the 99% one-year credit VaR using Vasicek’s model if the copula correlation parameter is 0.3. What is the Credit VaR?arrow_forward
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