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4c. Raphael Bank has three assets. They are listed as below: 1. a 12 year bond has a yield to maturity is 8.4%, while the
4c. Raphael Bank has three assets. They are listed as below: 1. a 12 year bond has a yield to maturity is 8.4%, while the market value is $12,000,000. The standard deviation of this zero-coupon bond is 88 basis points. 2. Euro 1,100,000 exposure. The exchange rate is $0.8/Euro. The standard deviation is 68 basis points. 3. $1,180,000 of equity. Beta is 1 and the adverse daily movement is 86 basis points. Correlation coefficient bond FX equity bond 1 0.3 0.7 FX 0.3 1 0.2 equity 0.7 0.2 1 Calculate the values of daily earnings at risk (DEAR) for these three assets separately by using a 5% one-tail probability (that is, the Z-value from the normal distribution table is 1.65). Then calculate the portfolio DEAR for the whole portfolio based on the correlation coefficients listed in the table (13 Marks)
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