AUDITRISKMODELPROBLEMS
Your firm plans based on the following version of the audit risk model:
AR = CR x DR ,
where DR = TD x AP,
AR is audit risk,
CR is control risk,
DR is detection risk,
AP is analytical procedures risk, and
TD is tests of details risk
S&C Chapter 19
Deposit Insurance and Other Liability Guarantees
Selected End-of-Chapter Questions and Answers
1. What is a contagious run? What are some of the potentially serious adverse social welfare
effects of a contagious run? Do all types of FIs fac
Chapter 10, Part 1
Market Risk
n Measuring exposures to VaR
lRiskMetrics
lHistoric Method
lMonte Carlo Simulation
n Evaluating the measures
lStress testing and scenarios
lBacktesting
1
Trading Book vs. Banking Book
(S&C Table 10-1)
Assets
Banking Cash
Boo
Chapter 10
Market Risk, Part 2
Extensions
n More on probability distributions
n Forecasting volatility
n In brief: VIX, EVT, and CFAR
1
The Normal Distribution
n It is often used to describe the distribution
of security returns
lIt is the limiting distrib
S&C Chapter 10: Market Risk
Selected End-of-Chapter Questions and Problems
1.
DEAR. Bank Alpha has a $1 million position in a five-year, zero-coupon bond with a face
value of $1,402,552. The bond is trading at a yield to maturity of 7.00%. The historical
This spreadsheet is for use in the problem set for S&C Chapter 10, Market Risk.
It is for problems 8 and 9.
The data to add from the problems are in the highlighted cells.
Portfolio DEAR with 3 Assets
Correlation
Asset a - L
Asset b - FX
Asset c - EQ
Asse
Worksheet for Finding Duration and Convexity
The sample bond:
F = $1,000.00; Coupon = 15%, paid annually; 14 years to maturity
Yield to Maturity
15%
Time
0
1
2
3
4
5
6
7
8
9
10
11
12
13
14
Calculation of
Duration D
Weight
Weight * Time
(PV(CF)/Price)
T
Ca
Chapter 19
Deposit Insurance & Other
Liability Guarantees
n Bank runs, contagion, and failures
n Why banks fail
n Controlling risk-taking in DIs
n Other guaranty programs
lFederal: PBGC, SIPC, NCUA
lStates: P&C insurers
1
FDIC Failures and Assistance Tran
Topic 1
Overview of Risk Management
1a: Risk and Volatility in
Economic and Financial Markets
1
What is Risk?
Consider 2 possible definitions:
1. Risk is the possibility that an event will have
a different outcome than expected.
2. Risk is the exposure to
REVENUE CYCLE - RATIO PATTERNS FOR SELECTED MISSTATEMENT CONDITIONS
COMPLETE
EXISTENCE
CUT-OFF
-NESS
VALUATION
Fictitious Sales
Developin
NOTHIN
Circular
Cutoff
Cutoff
g during
G
- Bill, no cash flow-early
late
year-UNUSUA
ship,
with
Bill and Ship, no bil
INTERPRETING SAMPLE RESULTS
1. An auditor has performed a test of controls with a statistical sample. The [maximum] tolerable deviation rate
[TDR] is 4%, and the specified risk of overreliance [risk of assessing control risk too low] is 5%. What is your
c
CHAPTER 10
MAKING CAPITAL INVESTMENT
DECISIONS
Answers to Concepts Review and Critical Thinking Questions
1.
In this context, an opportunity cost refers to the value of an asset or other input that will be
used in a project. The relevant cost is what the
S&C Chapter 9: Interest Rate Risk II
Selected End-of-Chapter Questions and Problems Part 2: MD & CX
1.
Immunization. Suppose you purchase a six-year, 8% coupon bond (paid annually) that is
priced to yield 9%. The face value of the bond is $1,000. The dura
Chapter 1
Part 1
Risk and Volatility in
Economic and Financial Markets
1
What is Risk?
Consider 2 possible definitions:
1. Risk is the possibility that an event will
have a different outcome than expected.
2. Risk is the exposure to an event in which
the
Chapter 1
Part 2
Essential Characteristics
of Financial Intermediaries
n The special role of FIs in the financial
system
n Why the various FIs receive special
regulatory attention
n Why some FIs are more special than
others
1
The Main Types of Financial
I
Chapter 1
Part 3
A Brief History of Regulation of
the Financial Sector
n The Great Depression and Glass Steagall
n Deregulation in the 1980s
n The housing market in the 2000s
n The financial crisis
n Dodd-Frank
1
The Roaring 20s
and the Great Depression
n
Chapter 7
An Overview of Risks of Financial
Intermediation
n Interest rate risk
n Market risk
n Credit risk
n Off balance sheet
risk
n Foreign exchange
risk
n Country or
sovereign risk
n Technology risk
n Operational risk
n Liquidity risk
n Insolvency ris
Chapter 7: Risks of Financial Institutions
Selected End-of-Chapter Questions and Problems
1.
Effects of changes in interest rates. A financial institution has the following market value
balance sheet structure:
Assets
Liabilities and Equity
Cash
Bond
$10,
Chapter 8
Interest Rate Risk I
n Basics of interest rates
n The repricing model
n The term structure of interest rates
(Appendix B)
n Note: We will not cover Appendix 8A on the
maturity gap model. This model is a precursor to
the duration gap model (Chapt
Chapter 8: Interest Rate Risk I
Selected End-of-Chapter Questions and Problems
1. a. What is the CGAP effect?
b. According to the CGAP effect, what is the relation between changes in interest rates and
changes in net interest income (NII) when CGAP is pos
Chapter 9
Interest Rate Risk II
Part 1: Duration
n Bond price sensitivities
n Macaulays duration and modified duration
n The relation of duration to price elasticity of a
bond
n The role of duration in portfolio management for
l an insurance firm
l a comm
Chapter 9
Interest Rate Risk II
Part 2: Convexity
Bond Prices & Yield to Maturity
F = $1,000, Int = $150/year
12
10
8
6
4
2
0
-0.05
0
0.05
0.1
0.15
0.2
0.25
1
0.3
Convexity
n Duration is a linear approximation of a non-linear
function.
l If there are larg
S&C Chapter 9: Interest Rate Risk II
Solutions of Selected End-of-Chapter Questions and Problems Part 1
1.
Calculating duration. A one-year, $100,000 loan carries a coupon rate and a market
interest rate of 12%. The loan requires payment of accrued intere
S&C Chapter 9: Interest Rate Risk II
Solutions of Selected End-of-Chapter Questions and Problems Part 2: MD & CX
1.
Immunization. Suppose you purchase a six-year, 8% coupon bond (paid annually) that is
priced to yield 9%. The face value of the bond is $1,
S&C Chapter 9: Interest Rate Risk II
Selected End-of-Chapter Questions and Problems Part 1
1.
Calculating duration. A one-year, $100,000 loan carries a coupon rate and a market
interest rate of 12%. The loan requires payment of accrued interest and one-ha
Chapter 1
Part 4
Basics of Commercial Bank Financial
Statements
n About bank financial statements
n The B/S: assets
n The B/S: liabilities
n The I/S
n Accounting for bad loans
1
About the Balance Sheet of a
Traditional Commercial Bank
n For traditional co