financial economic for policy problem set

This assignment has 2 big questions:

  1. Bank book profit vs economic profit / market value / guarantees
    This one asks you to calculate things like:
    • asset beta
    • expected return on assets using CAPM
    • market value of assets
    • implied market value of equity
    • whether shareholders are really earning an adequate return
    • how guarantees affect different stakeholders
  2. Pricing a debt guarantee using a binomial tree
    This one clearly depends on the Excel sheet, because the PDF says the spreadsheet contains the calculations for the tree, including q* and q.
  3. The qualitative answers should be in your own words. For calculation questions, you should also show the equations and numerical inputs you used.

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