Input

Initial Capital
FD Return
MF Return
Asset Allocation

To define the corpous amount yo required in the portfolio

1. Approx living expenses
2. Life expectancy of how many years you will live post retirement
3. Discount rate ( with which the PV will be calcuated)

Assumptions
Initial Capital 500000
FD Return 7%
MF Return 13%
Standard deviation 30%
Asset Allocation
FD 25%
MF 75%
Expected
drawdown 90000

Year Initial Capital MF FD

1 1000000 750000 250000
 2 1532529 1149397 383132.35
3 1665916 1249437 416479.11
4 1825904 1369428 456476.09
5 1774371 1330778 443592.68
6 1778243 1333682 444560.72
7 2079818 1559863 519954.45
8 2151356 1613517 537838.89
9 3041327 2280996 760331.84
10 3329922 2497441 832480.48
e portfolio

ve post retirement

Capital at end of the

Z 1+MF returnyear
1.6556862775712 1.56670588 1442529.41245352
-0.185285604532 1.01441432 1575916.45262928
-0.124392684353 1.03268219 1735904.34493708
-0.655618945207 0.87331432 1684370.71593038
-0.526844102951 0.91194677 1688242.89771455
0.2176877771406 1.13530633 1989817.79286898
-0.350563763803 0.96483087 2061355.5688338
1.3415353369418 1.4724606 2951327.3501835
-0.020894872871 1.06373154 3239921.93131978
1.6443222995554 1.56329669 4794996.0661879
Model equation:
• MF=Wealth*Risky asset
• FD=Wealth*Risk free asset

e. Tools and techniques used: 

• WHAT if analysis(Data Table)
• COUNTIF()
• RAND()

f. Interpretation of the output: 

• When investor is ready to take more risk he can invest more in risky asset and
• So, depending on concept of glide path investor can go ahead with investment

Drawdown
-90000
-90000
-90000
-90000
-90000
-90000
-90000
-90000
-90000
-90000
 more in risky asset and increase return.
o ahead with investment.

Capital end of the year

1532529
1665916
1825904
1774371
1778243
2079818
2151356
3041327
3329922
4884996
Data set and Inputs
The variables involved will be
Income
Cost of Project
Debt Capacity
Debt (cost*(debt/debt+equity)
TERM (YEARS)
Installment (COF, TERM, -DEBT)
Corporate tax rate
Operating Cash Flow (OCF)

Output: Average DSCR for each project.

Model :
DSCR= OCF/INSTALLMENT

Tools:
Using Goal seek we calculate the average DSCR to the required DSCR by ban

Interpretation:
Based on DSCR obtained from model lender will decide on the debt that can
 equired DSCR by bank by changing Debt - equity ratio

e on the debt that can be provided for the project

Data Set:
·       1: Par Value
·       2: Yield to Maturity
·       3: Coupon rate
·       4: Probability of Default
·       5: Expected Future Cash Flows
·       6: Term of bond 5 years(given)

Assumptions: -
Since the bond is at par so coupon rate is assumed to be 12% i.e. equal to YTM of 12%.

Output: -
Rating of the bond
No of times default

Equation:-
Present value of cashflow (PV)

Tools Used:
Data Table, PV, Hlookup,Max function, If NPV is greater or zero
Interpretation:-
Rating of the bond can be assigned by seeing how many times it has defaulted or the
bond to default.
Portfolio to hedge from interest rate risk
Data Set:
1.      Two bonds say Bond P and Bond Q
2.      Coupon rate 0.3 and 0.4
3.      Face value 100 and 100
4.      Term of the bond
5.      YTM
6.      Liability and time taken to repay

Assumption:
1.      Term structure, semi-annually
2.      First payment at the end of 6 months

Output of the model:

1.      Total liability will be matched with total asset

Model of Equation
1. Calculate the cashflow of both the bonds
2. Calculate the PV of the bonds using continuous compounding and summing up the P
3. Calculate the duration by taking product of time and weight and summing up for dur
4. Step 3 will be done for both the bonds.
5. Calculate the PV by the continuous discounting method and total liability value
6. Establish proportion for matching duration with default numbers which can be solve
7. By using solver tool to fix the value of duration with liability time by changing propor

Tools & Techniques: 

Solver
Data table (to check percentage change wrt YTM change)

Interpretation:
Total liabilities value must equal to asset value (value of bond portfolio)
get the price and weight through this step

. Make sure to keep sum of proportion values to be equal to 1.

Q6 :

a. Data set:
• Earnings, Spending 
• Current Savings 
• Total Wealth 
• Current Age 
• Asset owned by your friend 
• Expected future earnings

b. Assumptions: 
• Total savings have to be invested in fixed deposit and mutual funds. 
• Earning after fixing inflation rate
• Past investment to be default free
• Return from risky asset

c. Output: 
Ratio of investment (Proportion to be invested in MF and FD)

d. Model equation:
• MF=Wealth*Risky asset
• FD=Wealth*Risk free asset

e. Tools and techniques used: 

• WHAT if analysis(Data Table)
• COUNTIF()
• RAND()

f. Interpretation of the output: 

• When investor is ready to take more risk he can invest more in risky asset and increase return.
• So, depending on concept of glide path investor can go ahead with investment.
Risk based profiling for loan products
Data Set:
1.      Probability of default
2.      Loss Given default %
3.      Expected Loss % = Pron. Of Default * LGD%

IRR
1. Cost of Funds
2. Opex
3. Exp. Loss (EL)
4. Margin
IRR = SUM OF ALL

Assumption:
1.      Exposure at default is calucated assumning portfoli as homogeneous.
2.      First payment at the end of 6 months

Output of the model:

1.      Exp. Loss is fed as premium

Model of Equation
Expected Loss % = Pron. Of Default * LGD%

Tools & Techniques: 

IF , AverageIF & Countif statements

Interpretation:
For any customer that is onboarded , I will charge a premium of EL keeping as provisi
mogeneous.

EL keeping as provisions for the disbursed loan amt.