Excel代写 | RSM 432: Spring 2020 Assignment 2

RSM 432: Spring 2020
Assignment 2
Page 1 of 4
Internal
Assignment 2: Due date: April 5th, 2020 by 11:59 pm
This assignment is to be submitted in your team used for Assignment 1!
ALL NAMES ON ALL DOCUMENTS SUBMITTED!
Assignment is out of 100 points.
Question 1: Credit (20 points)
Green Triangle company, a Baa-rated company, has a market credit spread of 130 basis points on
a five-year bond. The recovery rate is 40%. Calculate:
a. the average hazard rate per year over five years using the data from table
19.1 at the end of this assignment
b. the average hazard rate per year over five years using credit spreads.
d. What factors can help to explain the magnitude of the expected risk
premium calculated in part c. Please explain in detail with an example.
e. Assume next that the bond provides a coupon of 5% per year paid
semiannually, has a yield of 6% (with continuous compaunding) and the
risk free yield is flat at 3%(with continuous compounding). Assume that
default occurs at the end of the year (right before coupon payments).
Estimate the default probability assuming that it is the same each year.
Question 2: Regulation (15 points)
Great Lakes Bank’s balance sheet (in billions USD) is shown below. Under Basel III
requirements, bank management must ensure that the Net Stability Funding Ratio (NSFR)
exceeds the minimum threshold.
Cash 3 Retail Deposits (Stable) 25
Treasury Bonds (> 1 yr) 5 Retail Deposits (less Stable) 15
Corporate Bonds Rated A 4 Wholesale Deposits 44
Mortgages 18 Preferred Stock (> 1 yr) 4