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A company has a long position in two year bond and a three year bond as well as a short position in a five year
A company has a long position in two year bond and a three year bond as well as a short position in a five year bond. Each bond has a principal of $100 million and pays a 5% coupon annually. Calculate the company's exposure to the on year, two year, three year, four year and five year rates. Use the data in table 8.7 and 8.8 to calculate the 20 day 95% VAR on the assumption that rate changs are explained by one factor, two factor and three factors. Assume that the zero coupon yield curve is flat at 5%
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