Question: A financial intermediary has two assets in its investment portfolio. It has 30 percent of its security portfolio invested in one-month Treasury bills and 70 percent in real estate loans. If it liquidated the bills today, the bank would receive $97 per hundred of face value. If the real estate loans were sold today, they would be worth $85 per 100 of face value. In one month, the real estate loans could be liquidated at $96 per 100 of face value. What is the intermediary's one-month liquidity index?
where, wi = weights of the portfolio based on the face value of the assets,
Pi= fire-sale price of asset i
Pi* = anticipated values in one year of asset i