Change In Value of Assets

Posted: August 26th, 2021

Assignment 2

Name

Institutional Affiliation

Assignment 2

Question 1

1. Change In Value of Assets

Assets	Amount ($)	Annual rate	Percentage change	Drop-in asset value	Value of assets
2 year loan	40,000,000	8%	1.85%	740,760	39259,240
3 year loan	60,000,000	8%	2.78%	16,66,667	58333333
	100,000,000			2,407,427	97592573

2 Year Loan

Duration= 2 years

Interest rate change= 8%-7%= 1%                                                                        

Interest rate= 8%

3 Year Loan

Duration= 3

Interest rate change= 8%-7%= 1%

Interest rate= 8%

• Change In Value Of Liabilities

Liabilities	Amount ($)	Annual Rate	Percentage Change	Drop-In Liabilities Value	Value Of Liabilities
3 year GIC	60,000,000	6%	2.83%	1,698,113	58,301,887
5 year term deposit	30,000,000	7%	4.67%	1,401,869	28,598,131
	90,000,000			3,099,982	86,900,018

3 Year GIC

Duration= 3 years

Interest rate change= 6%-5%= 1%

Interest rate= 6%

5 Year Term Deposit

Duration= 5 Years

Interest rate change= 7%-6%= 1%

Interest rate= 7%

• Change In Equity

            Assets= liabilities + equity

Change in equity= change in assets- change in liabilities

	Drop-In Value	Value
Assets	2407427	97592573
Liabilities	3099982	86900018
Equity	-692556	10692556

Question 2

1. Period

Par value =            1000

Coupon rate = 8% or 80.00

Maturity = 5 years, hence the interest rate is as follows;       

PV*year/1000

Year	1	2	3	4	5	Period
PV	0.074074	0.14	0.19	0.24	3.68	4.324074

Number of years= 4.32 years

• Adjustment

Modified duration prediction=-3.993*0.0020*1000=-7.9900

Percentage price change =-7.9900/1000=-0.800%

Adjusted price=1000-7.9900=992.0100

Question 3

1. Assets Duration

Assets	Million $	Duration (In Years)
30 days	300	0.0822
90 days	550	0.246
2 years	700	0.5
180 days	180	0.493
		1.322

• Liabilities Duration

Liabilities	million $
14 days	1150	0.038356
1 year	560	1
		1.038356

• Leverage-adjusted duration

Equity	Adjustment
Assets	1.321918
Liabilities	1.038356
	0.283562