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Chapter: 13 -Problem: 4 >> The “weighting-of-observations” procedure in Section 13.3 gives the one-day 99% VaR equal to $282,204 and the one-day ES as $400,914. Use the spreadsheets on the author’s website to calculate these measures when the l parameter in this procedure is changed from 0.995 to 0.99.
Answer Preview: The VaR be…

, Chapter: 9 -Problem: 1 >> Prove(a) That the definitions of duration in equations (9.1) and (9.3) are the same when y is continuously compounded and(b) That when y is compounded m times per year they are the same if the right-hand side of equation (9.3) is divided by 1 + y/m.
Answer Preview: (a) When y is continuously compo…

, Chapter: 28 -Problem: 3 >> With the benefit of hindsight, we can say that Kodak was in the “imaging and moment-sharing business.” What business are banks in?
Answer Preview: We may know the answer to this question only when technological developments …

, Chapter: 13 -Problem: 5 >> The first “volatility-scaling” procedure in Section 13.3 gives the one-day 99% VaR equal to $602,968 and the one-day 99% ES equal to $786,855. Use the spreadsheets on the author’s website to calculate the VaR and ES when the l parameter in this procedure is changed from 0.94 to 0.92.
Answer Preview: The one-day 99% …

, Chapter: 28 -Problem: 1 >> What is meant by a bubble? Consider whether the increase in the price of bitcoin in 2017 is a bubble.
Answer Preview: A bubble occurs when an assets value is higher than its intrinsic value. Usua…

, Chapter: 28 -Problem: 2 >> Look at the data in Table 28.1. Is Lending Club good at assessing risk? Is there a reasonable trade-off between risk and return for lenders? What risks are lenders taking?
Answer Preview: We can subtract the net annual return from the interest rate to get a measure of the default l…

, Chapter: 23 -Problem: 4 >> A bank has a business indicator (BI) of of 5.5 billion euros. It has had eight operational risk losses in the last 10 years. The amounts of the losses in millions of euros are: 3, 7, 15, 65, 85, 150, 250, and 300. What is the bank's operational risk regulatory capital under the standardized measurement approach (SMA)?
Answer Preview: The average 10-year loss is (3 + 7 + 15 + 65 + 85 + 150 + …

, Chapter: 5 -Problem: 5 >> The price of gold is currently $1,500 per ounce. The forward price for delivery in one year is $1,700. An arbitrageur can borrow money at 5% per annum. What should the arbitrageur do? Assume that the cost of storing gold is zero and that gold provides no income.
Answer Preview: The arbitrageur could borrow money to buy 100 ounces of g…

, Chapter: 2 -Problem: 1 >> Regulators calculate that DLC bank (see Section 2.2) will report a profit that is normally distributed with a mean of $0.6 million and a standard deviation of $2.0 million. How much equity capital in addition to that in Table 2.2 should regulators require for there to be a 99.9% chance of the capital not being wiped out by losses?
Answer Preview: There is a 99 9 % chance that t…

, Chapter: 4 -Problem: 1 >> An investor buys 100 shares in a mutual fund on January 1, 2018, for $50 each. The  fund earns dividends of $2 and $3 per share during 2018 and 2019. These are reinvested in the fund. The fund’s realized capital gains in 2018 and 2019 are $5 per share and $3 per share, respectively. The investor sells the shares in the fund during 2020 for $59 per share. Explain how the investor is taxed.
Answer Preview: The investor pays tax on dividends of $200 and $300 in year 2018 and year 2019, respect…

, Chapter: 27 -Problem: 2 >> A fund's risk appetite is such that it wants to be 97.5% certain it will not lose more than 25% in any one year. Using the performance of the S&P 500 between 1997 and 2016 (see Table 27.2), determine the beta the fund should have. Assume a risk-free rate of 2.5% per annum.
Answer Preview: In equation (27 1), we set R = 0 …

, Chapter: 17 -Problem: 3 >> Consider a delta-neutral position in a single asset with a gamma (measured with respect to percentage changes in the asset) of g (g > 0). Suppose that the 10-day return on the asset is normally distributed with a mean of zero and a standard deviation s. (a) What is an expression for the change in the portfolio value, DP, over 10 days as a function of g, s, and a random sample from a standard norma
Answer Preview: (a) IfD x is the percentage change in the price of the asset, a Taylor s…

, Chapter: 17 -Problem: 1 >> “Some aspects of the new regulations can be expected to increase the amount of collateral posted for derivatives and some can be expected to reduce it.” Explain this statement.
Answer Preview: Initial margin will be required on all derivative transact…

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8 Reviews for Risk Management and Financial Institutions Textbook Questions And Answers