Explanation:
The correct answer is B.
The term structure of cumulated expected cash flows (TSECCF) is the collection of expected cumulated cash flows, starting at and ending at ordered by date.
TSECF for year 1 = $25 + 7 + 0 + (-5) = 27$
TSECCF for year 2 = $27 + 5 - 20 - 6 = 6$
Ultimate access to all questions.
No comments yet.
Q.3931 Suppose that you are given assets, liabilities, and their respective expiry terms of a financial institution, as shown in the table below. Given that the assets bear no default risk, no liquidity options are embedded within deposits, and the assets and the liabilities have been ordered according to their maturity, disregarding which kind of contract they are. Study the table to build the TSECF for the institution.
| Expiry | Notional Positive Cashflows | Interest on Positive Cashflows | Notional on Negative Cashflows | Interest on Negative Cashflows |
|---|---|---|---|---|
| 1 | 25 | 7 | 0 | −5 |
| 2 | 0 | 5 | −20 | −6 |
| 3 | 0 | 5 | 0 | −3 |
| 4 | 0 | 5 | 0 | −3 |
| 5 | 60 | 8 | −35 | −3 |
| 6 | 0 | 2 | 0 | −3 |
| 7 | 0 | 2 | −20 | −3 |
| 8 | 0 | 2 | 0 | 0 |
| 9 | 0 | 2 | 0 | 0 |
| 10 | 15 | 2 | 0 | 0 |
| > 10 | 0 | − | −25 | 0 |
Calculate the TSECCF for the assets and liabilities with a term of two years to expiry.
A
-21
B
6
C
7
D
27