Arizona State University FIN FIN 40628 1. Suppose there are two ratings categories: A and B, along with…
1. Suppose there are two ratings categories: A and B, along with default. The ratings migration probabilities look like this for a B-rated loan:
Rating in 1 year Probability
A 0.05
B 0.90
Default 0.05
The yield on A rated loans is 5%; the yield on B rated loans is 10%. All term structures are flat (i.e. forward rates equal spot rates). A loan in default pays off 50%.
a) You have two loans in your portfolio, both are B-rated, 3-year, 10% coupon bonds
(paid annually), each with $100 face value. Compute the possible prices of the loans next year in each ratings bucket (just before the first coupon is paid).
b) Use the actual distribution and normal distributions of your positions to compute the 1-year VAR with 95% confidence for each loan.
Delivering a high-quality product at a reasonable price is not enough anymore.
That’s why we have developed 5 beneficial guarantees that will make your experience with our service enjoyable, easy, and safe.
You have to be 100% sure of the quality of your product to give a money-back guarantee. This describes us perfectly. Make sure that this guarantee is totally transparent.
Read moreEach paper is composed from scratch, according to your instructions. It is then checked by our plagiarism-detection software. There is no gap where plagiarism could squeeze in.
Read moreThanks to our free revisions, there is no way for you to be unsatisfied. We will work on your paper until you are completely happy with the result.
Read moreYour email is safe, as we store it according to international data protection rules. Your bank details are secure, as we use only reliable payment systems.
Read moreBy sending us your money, you buy the service we provide. Check out our terms and conditions if you prefer business talks to be laid out in official language.
Read more