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13) Suppose an FI has a $2 million market value position in zero coupon bonds of five years to maturity. Today's yield on these bonds
13) Suppose an FI has a $2 million market value position in zero coupon bonds of five years to maturity. Today's yield on these bonds is 6.597 percent per year. The bonds are held as part of the trading portfolio. Assume that changes in the yield are normally distributed and during the last year the mean change in daily yields on five-year zero-coupon bonds was 0 percent, while the standard deviation was 20 basis points. a) Calculate the daily and 10-day 99% value-at-risk (VAR) of the bond. b) Suppose another bond has a daily 99% VAR of $54,500. The yield changes between the two bonds have a correlation coefficient of 0.9. Calculate the daily 99% VAR of a portfolio that consists of the two bonds. 13) Suppose an FI has a $2 million market value position in zero coupon bonds of five years to maturity. Today's yield on these bonds is 6.597 percent per year. The bonds are held as part of the trading portfolio. Assume that changes in the yield are normally distributed and during the last year the mean change in daily yields on five-year zero-coupon bonds was 0 percent, while the standard deviation was 20 basis points. a) Calculate the daily and 10-day 99% value-at-risk (VAR) of the bond. b) Suppose another bond has a daily 99% VAR of $54,500. The yield changes between the two bonds have a correlation coefficient of 0.9. Calculate the daily 99% VAR of a portfolio that consists of the two bonds
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