Lesson 5 of 25 · 6 min

Recompute each row's lending value after the move

Advance rates stay put, so a uniform price move scales every lending-value line by the same 0.81.

Lending value on a row is market value multiplied by that row's advance rate. After a price move the advance rate is still the March rate, unless a later lesson changes it. A uniform 19 percent decline therefore multiplies every lending-value line by 0.81, and the five products have to add to $2,654,573.52.

Each March row, multiplied by 0.81, with the advance rate left where the schedule put it:

Meridian: $1,838,300 × 0.81 = $1,489,023 of market value, then × 0.50 = $744,511.50 of lending value.
Calder: $1,840,005 × 0.81 = $1,490,404.05, then × 0.35 = $521,641.42.
Broad-market collective: $891,420 × 0.81 = $722,050.20, then × 0.70 = $505,435.14.
Oakridge preferred: $511,680 × 0.81 = $414,460.80, then × 0.55 = $227,953.44.
Government fund: $951,390 × 0.81 = $770,625.90, then × 0.85 = $655,032.02.

Add the five lending values: $744,511.50 + $521,641.42 + $505,435.14 + $227,953.44 + $655,032.02 = $2,654,573.52. That is the same figure as $3,277,251.25 × 0.81, which is the check that the row-by-row work and the scaled total agree.

The Calder-only 37 percent move is the other pattern. Only one lending-value line changes: $644,001.75 × 0.63 = $405,721.10. The other four lines stay at their March lending values and the new total is $3,038,970.60. A price stress edits the lines whose prices moved, and it edits them by the same factor as their market values, because the advance rate was not one of the inputs that changed.

Key terms

Row lending value: That holding's current market value multiplied by its current advance rate. The figure the blended total is made of.
Unchanged advance rate: An advance rate inherited from the statement and not replaced in the stress. It makes lending value scale one-for-one with the price move.
Add-across check: The requirement that the five restated lending values sum to the scaled March total when the move is uniform.

Worked example

Five lending-value lines after a 19 percent decline

March advance rates held. Each March lending value multiplied by 0.81.

Meridian at 50 percent: $744,511.50
Calder at 35 percent: $521,641.42
Collective at 70 percent: $505,435.14
Oakridge at 55 percent: $227,953.44
Government fund at 85 percent: $655,032.02
Sum, and the scaled total: $2,654,573.52

Row-by-row and total-times-0.81 are the same arithmetic when no advance rate has been edited. Disagreement means a line was missed.

Check yourself

After the 19 percent decline, Calder's market value is $1,490,404.05 and its advance rate is still 35 percent. What is Calder's lending value, and what total do the five lending values have to add to?

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Educational only. Nothing in this lesson is investment, legal or tax advice, or a recommendation to enter into any transaction. Figures are illustrative and computed from the inputs stated in the lesson.