Assume an FI Holds Three Different Positions

question 17

Multiple Choice

Assume an FI holds three different positions. The following DEAR information is available for the positions. Position 1 is a five-year zero coupon bonds with DEAR of $12 500, position 2 is a CHF spot contract with DEAR of $9500 and the third position are Australian equities with DEAR of $34 500. The five-year zero coupon bonds and the CHF spot position have a negative correlation of 0.5, the correlation between the zero coupon bonds and the Australian equities is positive 0.5 and the correlation between the CHF spot contract and the Australian equities is positive 0.2. What is the DEAR of the portfolio?

• A) 12 500 + 9500 + 34 500 = $56 500.
• B) 12 500(-0.5) + 9500(0.5) + 34 500(0.2) = $5400.
• C) [12 500² + 9500² + 34 500² - 2(-0.5)(12 500)(9500) - 2(0.5)(12 500)(34 500) - 2(0.2)(9500)(34 500)]^1/2 = $31 514.
• D) [$12 500² + $9500² + $34 500² + 2(-0.5)(12 500)(9500) + 2(0.5)(12 500)(34 500) + 2(0.2)(9500)(34 500)]^1/2 = $43 363.

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Definitions:

Types Of Poverty

Categories that describe the different manifestations and experiences of poverty, which can include absolute poverty, relative poverty, and situational poverty, among others.

Social Assistance

A government program designed to provide financial aid to individuals or families in need, often based on income, disability, or unemployment status.

Single Mothers

Women who are raising their children without the presence or support of a partner.

Struggle With Poverty

The ongoing hardship and difficulties faced by individuals or communities living below the poverty line, affecting their quality of life.