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Please assist me with the following questions. Its Risk Management Overview The purpose of this assignment is to introduce you to the mapping of cash
Please assist me with the following questions. Its Risk Management
Overview The purpose of this assignment is to introduce you to the mapping of cash flows. Your task will be to allocate the cash flows between the standard RiskMetrics vertices. Data Suppose that on March 27, 2015, an investor owns 100,000 of the French OAT benchmark 7.5% maturing in April 2025. This bond pays coupon flows of 7,500 each over the next 10 years and returns the principal investment at maturity. One of these flows occurs in 6.08 years, between the standard vertices of 5 and 7 years (for which volatilities and correlations are available). RiskMetrics data for March 27, 2015 Risk Metrics Vertex 5yr 7yr Yield,% 7.628 7.794 % Price volatility (1.65 t), % 0.533 0.696 Correlation Matrix ij 5yr 1.000 0.963 7yr 0.963 1.000 To Do 1 First, calculate the actual cash flow's interpolated yield. 2. Then determine the actual cash flow's present value. You may use PV=Cash Flow/(1+yield)^(time period). 3. Calculate the standard deviation of the price return on the actual cash flow. Please remember that the volatility represents 1.65xt. 4. Calculate both and (1-). Again you need to convert 1.65 t into t. 5. Then allocate the present value of cash flow into Risk Metrics vertex cash flows. That means cash flow for vertex 5 and cash flow for vertex 7Step by Step Solution
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