A bank has a $2 million market value position in a 5-year, zero coupon bond.The bond is yielding 6%.The mean change in the daily yields of the 5-year, zero coupon bond has been 4 basis points over the past year with a standard deviation of 10 basis points.Using these data and assuming the yield changes are normally distributed:

(a) (3 points) What is the highest yield change expected if a 99 percent confidence level is required?

(b) (3 points) What is the daily earnings at risk (DEAR) using a 99 percent confidence level?

(c) (3 points) How do you interpret in words the DEAR calculated in Part (b)?