Question
7 Given a Finantial Institution whose assets, basically loans, are represented by cash flows to be received from year 1 to year 5 Therefore the
7
Given a Finantial Institution whose assets, basically loans, are represented by cash flows to be received from year 1 to year 5
Therefore the institution expects to receive the following cash flows per year from the outstanding loans (Cash Flow Map)
Year 1 200 Million
Year 2 175 Million
Year 3 200 Million
Year 4 150 Million
Year 5 130 Million
Those loans have been given to an specific client segment with a rating that implies that a credit spread of 125 basis points should be added to the Risk Free Zero Coupon Curve
That spread has been computed using Spread = Expected Default Rate (1 - Recovery)
The current Risk-Free Zero Coupon Curve is
1 year Zero Coupon Rate 1%
2 year Zero Coupon Rate 2%
3 year Zero Coupon Rate 2,5%
4 year Zero Coupon Rate 3%
5 year Zero Coupon Rate 3,5%
Which is the value of the assets?
768,9 Million
855 Million
794,7 Million
695,0 Million
plz use excel to explain if possible
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