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A financial institution (FI) wants to obtain the DEAR on its trading portfolio. The portfolio consists of the following securities Fixed-income securities: The Fl has

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A financial institution (FI) wants to obtain the DEAR on its trading portfolio. The portfolio consists of the following securities Fixed-income securities: The Fl has a $1 million position in a six-year, zero coupon bond 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. The Fl also holds a 12-year, zero-coupon 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 of the potential adverse move in yields is 65 basis points Foreign exchange contracts: The Fl has a 2.0 million long trading position in spot euros at the close of business on a particular day. The exchange rate is 0.80/51, or $1.25/, at the daily close. Looking back at the daily percentage changes in the exchange rate of the euro to dollars for the past year, the Fl finds that the volatility or standard deviation (a) of the spot exchange rate was 55.5 basis points (bp). Equities: The Fl holds a $2.5 million trading position in stocks that reflect the U.S. stock market index (e.g., the S&P 500). The B = 1. Over the last year, the standard deviation of the stock market index was 175 basis points. Correlations (Py) among assets are as follows: 6-Year. Zero Coupon 12-Year, Zero Coupon U.S. Stock Index 6-year, zero coupon 0.40 12-year, zero coupon -03 6/5 0.25 U.S.stock Index 1. Calculate the DEAR of this trading portfolio 2. If the correlation matrix changes as follows, what will the FI'S DEAR be C/$ 0.75 -0.2 0.45 6-Year, Zero Coupon 12-Year, Zero Coupon 0.85 C/$ -01 -0.4 6-year, zero coupon 12-year, zero coupon es US stock index U.S. Stock Index 0.25 0.35 0.40 3. If the standard deviation of the stock market index increases to 325 basis points, what will the FI's DEAR be? Use the original correlation matrix. 4. If the Fl's FX position were changed to 4.0 million, what will the Fl's DEAR be

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