Consider the following situation: an FI holds two assets in equal proportions, these being liquid securities with a fair market value of $200 and housing loans with a fair market value of $800.Further assume that in case of immediate liquidation, the FI would receive $185 for its liquid securities and $700 for its housing loans.What is the FI's liquidity index (round to two decimals)?
A)I = (185/200) + (700/800) = 1.80
B)I = (185/200) * (700/800) = 0.81
C)I = 0.5 * (185/200) + 0.5 * (700/800) = 0.90
D)I = [0.5 * (185/200)] * [0.5 * (700/800)] = 0.20

Question

Quizplus · Accepted Answer

The liquidity index is calculated by taking the proportion of the immediate sale value to the fair market value of each asset and adding them together. In this case, the calculation would be: (185/200) + (700/800) = 0.925 + 0.875 = 1.80. However, since the FI holds these assets in equal proportion (50/50), the calculation needs to be adjusted to reflect this. Therefore, the final calculation is: 0.5*(185/200) + 0.5*(700/800) = 0.925*0.5 + 0.875*0.5 = 0.90. Thus, the correct answer is C.

Consider the Following Situation: an FI Holds Two Assets in Equal