AAA Bank is an Australian bank, the bank wants to measure its market risk exposure by calculating the daily earnings at risk (DEAR) on its trading portfolio.

The bank's trading portfolio consists of the following assets:

(a) Fixed-income securities (Bonds):

The bank holds a 10-year zero coupon bond with a face value of AUD$3,500,000. The bond is trading at yield to maturity of 3 percent. The potential adverse move in yields is [depends on the last digit of your student ID*] .

* If the last digit of your student ID is an odd number (for example XXXXXX9), the potential adverse move in yields is 0.0025

If the last digit of your student ID is an even number (including 0) (for example XXXXXX0 or XXXXXX4), the potential adverse move in yields is 0.0035

Calculate DEAR for Fixed Income if a 90% confidence limit is required. [2 marks]

(b) Equities:

The bank holds an AUD$6 million trading position in stocks that reflects the stock market index (the = 1). Over the last year, The historical mean change in the stock market index was 0.0 per cent and the standard deviation of the stock market index was [depends on the last digit of your student ID*]

* If the last digit of your student ID is an odd number (for example XXXXXX9, the standard deviation of the stock market index was 1.6%

If the last digit of your student ID is an even number (including 0) (for example XXXXXX0 or XXXXXX4, , the standard deviation of the stock market index was 2.1%

Calculate DEAR for equities if a 90% confidence limit is required. . [2 marks]