7) In the event of an unexpected and severe drain on deposits in the next 3 days, and 10 days, the DI will liquidate assets in the following manner:

asset	fair value	t=3 days	t=10 days
cash	$9	$9	$9
treasury bills	16	14	15.5
GNMAs	10	8	9
Loans	95	65	75

Calculate the 3-day and 10-day liquidity index for the DI.

An FI wants to obtain the DEAR on its trading portfolio. The portfolio consists of the following securities.

Fixed-income securities:

i) The FI has a $1 million position in a six-year zero bonds with a face value of $1,543,302. The bond is trading at a yield to maturity of 7.50 percent. The historical mean change in daily yields is 0.0 percent, and the standard deviation is 22 basis points.

ii) The FI also holds a 12-year zero bond with a face value of $1,000,000. The bond is trading at a yield to maturity of 6.75 percent. The price volatility if the potential adverse move in yields is 65 basis points.

Foreign exchange contracts:

The FI has a 2.0 million long trading position in spot euros at the close of business on a particular day. The exchange rate is 0.80/$1, or $1.25/, at the daily close. Looking back at the daily changes in the exchange rate of the euro to dollars for the past year, the FI finds that the volatility or standard deviation (?) of the spot exchange rate was 55.5 basis points (bp).

Equities:

The FI holds a $2.5 million trading position in stocks that reflect the U.S. stock market index (e.g., the S&P 500). The ? = 1. Over the last year, the standard deviation of the stock market index was 175 basis points.

Correlations (?ij) among Assets

	six-year zero coupon	12-year zero coupon	/$	US stock index
Six year, zero coupon	-	0.75	-0.2	0.40
12 year, zero coupon	-	-	-0.3	0.45
/$	-	-	-	0.25
US stock index	-	-	-	-

a) Calculate the DEAR of this trading portfolio for 5% confidence level

b) Calculate the VaR for 10 days of this trading portfolio