We hold a fixed-income portfolio including two bonds: A zero maturing in three years, and a coupon-bearing bond paying one coupon per year with coupon rate \(4 \%\), maturing in two years. The face value is \(€ 1000\) for both bonds, and we have invested \(€ 53,000\) and \(€ 93,000\) in the two bonds, respectively (let us assume infinitely divisible assets, i.e., we may buy fractions of a bond). We are given the following risk-free forward rates, with annual compounding:

The price of the two bonds is also related to sovereign risk, i.e., all of the interest rates used in pricing are incremented by a spread that is currently \(2.3 \%\). This rate reflects default risk on sovereign debt. Let us assume that the spread is subject to a random shock on the very short term, which is uniformly distributed between \(1 \%\) and \(+2 \%\). Find V \(@ R\) at \(99 \%\) confidence level on the short term (in other words, we do not consider the effect of time on the bond prices).

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fi(0,0,1)=3%, fi (0,1,2)=4%, fi(0,2,3) = 5%.