Question

A DI has two assets: 50 percent in one-month T-bills and 50 percent in real estate loans. If the DI must liquidate its T-bills today, it receives $98 per $100 of face value; if it can wait to liquidate them on maturity (in one month's time), it will receive $100 per $100 of face value. If the DI has to liquidate its real estate loans today, it receives $90 per $100 of face value. However, liquidation of real estate loans at the end of one month will produce $92 per $100 of face value. The one-month liquidity index value for this DI's asset portfolio is:

Answer 1

Step-by-step explanation:

The one-month liquidity index value for this DI's asset portfolio

= weight of T-bills * (value of T-bill today / value of T-bills after one month) + weight of real estate loan * (value of real estate loan today / value of real estate loan after one month)

= 50% * ($97 / $ 100) + 50% ($93/ $94)

= 0.5 * 0.97 + 0.5 *0.9894 = 0.9797

Therefore one-month liquidity index value for this DI's asset portfolio is 0.98.