6. The assets listed below are going to be liquidated to finance an acquisition. Consider their one-year liquidation value to be fair market value.
Asset Face value Current One-year
Liquidation value Liquidation value
PACCAR stock 80,000 70,000 77,500
Safeco bonds 40,000 36,000 39,000
Treasury bonds 25,000 25,000 25,000
A. Calculate the one-year liquidity index for these securities.
B. What does your answer mean for the bank?
7. If a bank manager was certain interest rates were going to rise within the next six months, how could he or she take advantage by rebalancing rate-sensitive assets and rate-sensitive liabilities on the balance sheet?
8. The portfolio you manage is holding $5 million of Treasury bonds with a 7% coupon rate and 5 years to maturity with a price of $98 (per $100 face value). To hedge the interest-rate risk on these bonds over the coming year, should you buy call or put options?
9. Suppose that the pension fund you are managing is expecting an inflow of funds of $15 million next year and you want to make sure that you will earn the current interest rate of 6% when you invest the incoming funds in long-term bonds. How would you use the futures market to do this?