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c) ABC Bank has a $1 million position in a five-year, zero-coupon bond with a face value of $1,402,552. The bond is trading at a
c) ABC Bank has a $1 million position in a five-year, zero-coupon bond with a face value of $1,402,552. The bond is trading at a yield to maturity of 7%. The historical mean change in daily yields is 0.0 percent and the standard deviation is 12 basis point. (i) What is the modified duration of the bond? (ii) What is the maximum adverse daily yield move given that we desire no more than a 1 percent chance that yield change will be greater than this maximum? (iii) What is the price volatility of this bond? (iv) What is the daily earnings at risk (DEAR) for this bond? (v) What is the DEAR of the bond for a 10-day period? What statistical assumption is needed for this calculation
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