ALMENT TWO STUDY AND PROBLEM SOLVING ON HEGDING AND FINANCIAL ENGINEERING INDIVIDUAL ACTIVITY ANSWER ALL THE QUESTIONS BELOW. TOTAL MARKS-30. 1. Compute the Value-at-Risk (VaR) of a six-month forward contract. The transaction requires the investor to deliver $12.7 million in 180 days and receive 10 million in exchange. Assume that the current spot rate is $1.26/1 and the annualized interest rate is 4% on a six-month zero coupon bond and 3% on a six-month zero coupon Euro bond. Again, assume the variance/co-variance matrix (on daily returns) across those instruments are as follows: Six-Month $ Bond Six-Month $ Bond Six-Month $ Bond Six-Month $ Bond 0.0000314 Six-Month Bond 0.0000043 0.0000260 Spot $/ Rates 0.0000012 0.0000013 0.0000032 (a) Compute the value of the short position in the zero coupon dollar bond. (2 Marks) (b) Compute the value of the long position in the zero coupon euro bond (in $ terms). holding spot rate fixed: (2 Marks) (c) Compute the VaR for this forward Contract. (2 Marks) (d) Compute the daily VaR for this forward contract assuming returns are normally distributed with a 90% confidential interval. (4 Marks). 2. Consider the table below. Fill in the blank spaces with the reaction of the puts and calls to an increase in the variables in the left-hand column. (5 Marks) Increase in Put Call Interest rate Share Price Volatility Exercise Price Time-to-Maturity ASSIGNMENT TWO MINI CASE STUDY AND PROBLEM SOLVING ON HEGDING AND FINANCIAL ENGINEERING PRODUCTS INDIVIDUAL ACTIVITY. ANSWER ALL THE QUESTIONS BELOW. TOTAL MARKS-30. 1. Compute the value at Risk (VaR) of a six month forward contract. The transaction requires the investor to deliver $12.7 million in 180 days and receive 10 million in exchange. Assume that the current spot rate is $1.26/1 and the annualized interest rate is 4% on a six-month zero coupon bond and 3% on a six-month zero coupon Euro bond Again, assume the variance/co-variance matrix (on daily returns across those instruments are as follows: Six Month $ Bond Sir Month $ Bond Six Month $ Hond Six-Month $ Bond 0.0000314 Sve Month C Bond 0,0000043 0.0000260 Spot S/E Rates 0.0000012 0.0000013 0.0000032 (a) Compute the value of the short position in the zero coupon dollar bond. (2 Marks) (b) Compute the value of the long position in the zero coupon euro bond in 5 terms). holding Spot rate fored. (2 Marks) (c) Compute the Val for this forward Contract. (2 Marks) (d) Compute the daily VaR for this forward contract assuming returns are normally distributed with a 90% confidential interval (4 Marks). 2. Consider the table below. Fill-in the blank spaces with the reaction of the puts and calls to an increase in the variables in the left hand column 15 Marks) Increase in Put Call Interest rate Share Price Volatility Exercise Price Time-to-Maturity 3. Assume al Assets on the ABC Bank Balance Sheet as at 2018 are risk weighted. (GHS) Current Assets 7,000,000.00 Current Liabilities 6,000,000.00 Long Term Assets 3,000,000.00 Long Term Liabilities 2,000,000.00 Owners Equity Shares sold 800,000.00 Undisclosed Revaliation 800,000.00 Bulns 400,000.00 Total Assets 10,000,000.00 Total Assets 10,000,000.00 la) Compute the Risk-Weighted-Capital Ratio (b) Compute Liquidity Cover Ratio (LCR) (c) Compute the Leverage Ratio (d) Compute the working Capital (e) Compute the Capital Asset Ratio (CAR) (2 Marks) (2 Marks) (2 Marks) (2 Marks) (2 Marks) III