6.14 A market value balance sheet for the Carr Commercial Bank is given below in millions of dollars: Assets Liabilities Short-term Short-term U.S. government bonds Loans 100 200 700 Deposits Equity 850 100 1000 1000 The standard deviations and correlation between returns on asset and liability categories (excepting equity) are as follows: a(ST A) = .02. STAUS- "STALO STA STZ- "STA.D- "US.STL = 0. USD 3. 0(L) = .07. rus.c . 'L.STL - STL.D=0 1.D 2. 0(STL) = .02. (D) - .03. a) What is the standard deviation of the equity holder's position? 192 OBJECTS OF CHOICE: MEAN-VARIANCE UNCERTAINTY Suppose the bank decides to hedge by taking a position in T-bond futures contracts. You are given the following information: V.. = $90,000 for a $100,000 face-value T-bond contract, "TB.US- TB.L - 5. B.STL BD.3 Should the bank take a long or short position in T-bond futures? How many futures con- tracts should they buy/sell? How much is the standard deviation of equity reduced? 7. A market value balance sheet for the Carr Commercial Bank is given below in millions of dollars: Assets Liabilities Short-term Assets 100 Short-term Liabilities U.S. government bonds 200 Deposits 850 Loans 700 Equity 100 1000 1000 The standard deviations and correlations between returns on asset and liability categories (excepting equity) are as follows: AD = 0; O(STA) -0.02: O(US) = 0.04 : O(L) -0.07 : (STL) = 0.02: (D) = 0.03 : PSTARS = 0 Pstu = 0 PTASTO P Pusz = 0.8 Pussn = 0 Pusp=0.3 : Pest= 0 Pue0.2 : Psp = 0 : (1) What is the standard deviation of the equity holder's position ? (2) Suppose the bank decides to hedge by taking a position in T-bond futures contracts. You are given the following information: V = $ 90,000 for a $ 100,000 face-value T-bond contract, O(TB)=0.08 : Prasta = 0 Preis = 0.9 Prze = 0,5 . Pasn=0 P -0.3 : (2.1) Should the Bank take a long or short position in T-bond futures? (2.2) How many futures contracts should they buy/sell ? (2.3) How much is the standard deviation of equity reduced ? 6.14 A market value balance sheet for the Carr Commercial Bank is given below in millions of dollars: Assets Liabilities Short-term Short-term U.S. government bonds Loans 100 200 700 Deposits Equity 850 100 1000 1000 The standard deviations and correlation between returns on asset and liability categories (excepting equity) are as follows: a(ST A) = .02. STAUS- "STALO STA STZ- "STA.D- "US.STL = 0. USD 3. 0(L) = .07. rus.c . 'L.STL - STL.D=0 1.D 2. 0(STL) = .02. (D) - .03. a) What is the standard deviation of the equity holder's position? 192 OBJECTS OF CHOICE: MEAN-VARIANCE UNCERTAINTY Suppose the bank decides to hedge by taking a position in T-bond futures contracts. You are given the following information: V.. = $90,000 for a $100,000 face-value T-bond contract, "TB.US- TB.L - 5. B.STL BD.3 Should the bank take a long or short position in T-bond futures? How many futures con- tracts should they buy/sell? How much is the standard deviation of equity reduced? 7. A market value balance sheet for the Carr Commercial Bank is given below in millions of dollars: Assets Liabilities Short-term Assets 100 Short-term Liabilities U.S. government bonds 200 Deposits 850 Loans 700 Equity 100 1000 1000 The standard deviations and correlations between returns on asset and liability categories (excepting equity) are as follows: AD = 0; O(STA) -0.02: O(US) = 0.04 : O(L) -0.07 : (STL) = 0.02: (D) = 0.03 : PSTARS = 0 Pstu = 0 PTASTO P Pusz = 0.8 Pussn = 0 Pusp=0.3 : Pest= 0 Pue0.2 : Psp = 0 : (1) What is the standard deviation of the equity holder's position ? (2) Suppose the bank decides to hedge by taking a position in T-bond futures contracts. You are given the following information: V = $ 90,000 for a $ 100,000 face-value T-bond contract, O(TB)=0.08 : Prasta = 0 Preis = 0.9 Prze = 0,5 . Pasn=0 P -0.3 : (2.1) Should the Bank take a long or short position in T-bond futures? (2.2) How many futures contracts should they buy/sell ? (2.3) How much is the standard deviation of equity reduced
