A financial intermediary has two assets in its investment portfolio. It has 35 percent of its security portfolio invested in one-month Treasury bills and 65 percent in real estate loans. If it liquidated the bills today,the bank would receive $98 per hundred of face value. If the real estate loans were sold today,they would be worth $85 per 100 of face value. In one month,the real estate loans could be liquidated at $94 per 100 of face value. What is the intermediary's one-month liquidity index?

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The liquidity index is calculated by taking the sum of the products of the percentage of each asset in the portfolio and its liquidation value today, divided by the sum of the products of the percentage of each asset in the portfolio and its value in one month. For the Treasury bills, the liquidation value today is $98 per $100 of face value, and for the real estate loans, it's $85 per $100 of face value today and $94 in one month. The calculation is as follows:$$ \text{Liquidity Index} = \frac{(0.35 \times 98) + (0.65 \times 85)}{(0.35 \times 100) + (0.65 \times 94)} $$$$ = \frac{(34.3) + (55.25)}{(35) + (61.1)} $$$$ = \frac{89.55}{96.1} $$$$ = 0.9318 $$Rounded to two decimal places, the liquidity index is 0.93.

A Financial Intermediary Has Two Assets in Its Investment Portfolio