Financial Risk Manager Part 2

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Explanation:

\frac{(\text{Term in year 1} \times \text{Term liquidity premium}) + (\text{Term in year 2} \times \text{Term liquidity premium}) + \cdots (\text{Term in year n} \times \text{Term liquidity premium})}{\text{Term in year } (1 + 2 + 3 + \cdots + n)}

\frac{(1 \times 2) + (2 \times 6) + (3 \times 8) + (4 \times 9) + (5 \times 12)}{(1 + 2 + 3 + 4 + 5)} = 8.93 \text{bps}

Explanation:

\frac{(\text{Term in year 1} \times \text{Term liquidity premium}) + (\text{Term in year 2} \times \text{Term liquidity premium}) + \cdots (\text{Term in year n} \times \text{Term liquidity premium})}{\text{Term in year } (1 + 2 + 3 + \cdots + n)}

\frac{(1 \times 2) + (2 \times 6) + (3 \times 8) + (4 \times 9) + (5 \times 12)}{(1 + 2 + 3 + 4 + 5)} = 8.93 \text{bps}

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Term in years	1	2	3	4	5
Pre-Global Financial Crisis
Term liquidity premium	2	6	8	9	12
Average cost of funds	4	4	4	4	4
Difference	−2	2	4	5	8

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Last updated: July 5, 2026 at 07:08

3.93bps

8.93bps

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