Be detailed pls.
11. (7 points) You are a consultant hired by insurance company XYZ to evaluate their ALM process. During your review, you find the following: . Company XYZ's assets include treasuries, corporate bonds, commercial mortgages and MBS . XYZ's goal is to match the duration of assets and liabilities . They calculate and report effective duration of liability and assets quarterly. Below are the results from the ALM model. Interest Rate Move Assets Liability Shock Up 50 bps 180 M 160 M No shocks 200 M 180 M Shock Down 50 bps 210 M 220 M (a) (/ point) Compare Macaulay duration, empirical duration, effective duration and key rate duration. (b) (/ point) Explain the possible reasons that the value of assets could move differently from the duration predicted value. (c) (1 point) Identify risks that XYZ faces in a falling interest rate environment. (d) (2.5 points) Estimate the value of assets and liabilities following a 70bps drop in interest rates using duration and convexity. (e) (1.5 points) Evaluate suitability of adding the following assets to improve the company's asset liability risk management. (i) 30 year high yield bond (ii) 15 year callable investment grade bond13. (7 points) You are the portfolio manager of an asset management firm. Due to a series of quantitative easing policies implemented by the Federal Reserve in the past, you are now evaluating the decision of investing in commodities in a balanced fund portfolio using crude oil futures. (a) (/ point) Describe the advantages of investing in commodities in the portfolio. (b) (/ point) Explain why purchasing oil futures is more effective in getting commodity exposure than purchasing stocks of an oil company. (c) (/ point) Propose a formula to determine the relationship between futures price and spot price. Define all terms. (d) (/ point) Define the law of one price and describe how it relates to oil ETT's. (e) (3 points) The available crude oil futures contracts are shown in the below table: Futures Price as of November 2013 Futures Prices as of Change in Spot Contract Maturity (USS) October 2013 (US$) Price (US$) December 2013 92.20 91.20 0.55 January 2014 91.55 90.65 0.55 February 2014 89.50 88.60 0.55 (i) Describe the three components of returns on a futures contract. (ii) Explain the sloping structure of the futures prices listed in the table. (iii) Recommend a futures strategy that is expected to provide a positive return with the above oil futures contracts.Explain your reasoning and write legibly a. Why are perfectly competitive firms price- takers? Choose one industry that is likely to be perfectly competitive and describe why. Which of the characteristics of perfect competition do you find to be least realistic and why? b. For the industry that you chose in part A, draw the long run equilibrium graph for the global market and for an individual producer and explain the two ways that these graphs are connected. Why is the ATC curve in this location in long run equilibrium? What will happen if ATC
