Please give me detailed solution with all the calculations that lead you to the answer.

 

(The following information relates to Questions 27 to 29)

 

An insolvent bank has liabilities worth $100 million and assets valued at only $50 million. Among the liabilities, $75 million are insured deposits and $25 million are uninsured. To be fair, uninsured depositors and CDIC share pro-rata the asset claims.

 

 

 

27.      What is the CDIC’s loss if the payout and closure method of failure is used?

____

A)       $15.5 million

B)       $25.0 million

C)       $37.5 million

D)       $50.0 million

 

 

28.      What is the maximum loss to CDIC if an open assistance is made? Assume that the arrangement costs CDIC $2 million a year while the failed bank will not be kept for more than 3 years. For simplicity, ignore the time value.

____

A)       $2.67 million

B)       $4.16 million

C)       $6.00 million

D)       All of the above

 

 

29.      With the risk-based pricing scheme, if this trouble bank pays a deposit insurance premium of $105,000, what is the appropriate charge?

____

A)       3.5¢ per $100

B)       7.0¢ per $100

C)       14.0¢ per $100

D)       28.0¢ per $100

 

(The following information relates to Questions 34 and 35)

 

You buy $10 million, 5% coupon, 3-year bonds issued by ABC Co. Over the life of the bond, changes in the ABC’s creditworthiness cast doubt on its payment promise. To protect against the falling value in your bonds, you enter into a credit default swap (CDS) with XYZ Insurance. 

 

 

34.      The size of the protection payment is 1.09% for every six month. How much premium do you pay for each year?

____

A)               $109,000

B)               $152,000

C)               $218,000

D)               $327,000

 

 

35.      Unfortunately, ABC goes bankrupt before the CDS ends. Luckily enough, the recovery value on the bonds is 45%. How much does XYZ have to compensate you? 

____

A)       $4,500,000

B)       $5,500,000

C)       $9,673,000

D)       $10,000,000

 

Please give me detailed solution with all the calculations that lead you to the answer.

 

38.      A bank has the following assets its portfolio: $15 million in cash balances with the Bank of Canada, $25 million in T-bills, $55 million in mortgage loans, and $5 million in fixed assets. If the assets need to be liquidated at short notice, the bank will receive only 95% of the fair market value of the T-bills and 90% of the fair market value of the mortgage loans. Estimate the liquidity index.

____

A)   0.711

B)   0.648

C)   0.595

D)   0.883 

Hint:   

 

 

39.      What is the duration of a two-year coupon-bond selling at par and receiving 8% interest annually?

____

A)   2.00 years

B)   1.93 years

C)   1.89 years

D)   Undetermined due to the missing interest rates