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Posted on Jul 26, 2024

6.14 A market value balance sheet for the Carr Commercial Bank is given below in millions of dollars: Assets Liabilities 100 Short-term U.S. government bonds

6.14 A market value balance sheet for the Carr Commercial Bank is given below in millions of dollars: Assets Liabilities 100 Short-term U.S. government bonds Short-term Deposits Equity so 850 200 Loans 700 100 1000 1000 The standard deviations and correlations between returns on asset and liability categories (excepting equity) are as follows: a(ST A) = .02. S TAL - STA.STL STAUS - O STAD- -.04. . "US.STL = 0. USD ). 0(L) = .07. rus.c 'L.STL- STLD r..D= 2 (STL) = .02. a(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, 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 100 Short-term U.S. government bonds Short-term Deposits Equity so 850 200 Loans 700 100 1000 1000 The standard deviations and correlations between returns on asset and liability categories (excepting equity) are as follows: a(ST A) = .02. S TAL - STA.STL STAUS - O STAD- -.04. . "US.STL = 0. USD ). 0(L) = .07. rus.c 'L.STL- STLD r..D= 2 (STL) = .02. a(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, 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