1.(10 points in total)A portfolio manager holds a short $150 million position in 10-year Treasury notes with a daily volatility of 0.7%.

(a)What is the one-day VaR of this position? For the computation of VaR, assume normal distribution and a 95% confidence level. . (5 points)

(b)The manager decides to hedge his position by buying 100 million 7-year Treasury notes with a daily volatility of 0.5%. The correlation between the 7-year note and the original 10-year note is 0.97. What is the 95% one-day VaR of this hedged position? (5 points)