Calculate the present value of a zero-coupon bond with the following characteristics: $1,000 face value; 1.85% rate; 6 months (=0.50 years) until maturity. $990.88 A bond fund owns $2,000,000 principal of Treasury bond A. Its current percentage of par price is 96.00% (0.9600). a. What is the value of Bond A? (1 point) 2,000,000 X 0.9600 = $1,920,000 You might need to sell Bond A soon, so you want to hedge its value using a different bond, Bond B. The percentage-of-par price of Bond B is 98.00% (0.9800). 2,000,000 X =0.9800 =$1,960,000 b. To hedge Bond A, do you buy Bond B, or sell Bond B? (1 point) BUY c. If the Modified Duration of Bond A is -6.000 and the Modified Duration of Bond B is -5.000, what value of Bond B to you buy or sell as a hedge? (2 points) d. What is the principal amount of Bond B that you buy or sell? (round answer to the nearest $1,000 (2 points) Suppose you own 100,000 shares of corporate stock. The shares are priced at $50.00. The average daily price change is zero; the 1-day standard deviation of price change is $0.27. a. What is the 1-day VaR at 99.9% (0.999) confidence level [using 3.090 standard deviations, assuming price changes follow a normal distribution (zconfidence = 3.090)] b. Using this 1-day VaR, what will the 10-day VaR be? You look at three 10-year bonds: Bond I is a corporate bond whose S&P rating is BBB; Bond II is a U.S. Treasury bond; Bond III is a corporate bond whose S&P rating is AA The yields on the three bondsd are below (not in order). Place the three bonds I, II, III in order of their yields: Yield Bond (I, II, III) 3% 4% 5% Your bond portfolio has principal of $4,000,000. Average 1-day change in the bond price is -0.25% (-0.0025, or -25 basis points). Standard deviation of 1-day price changes is 0.53% (0.0053). Compute the 1-day VaR with 0.999 confidence (zconfidence= 3.090) (You may decide whether or not to include Expected Loss. Either way, give a brief explanation for your decision to include it or not to include it.) Computation: Explanation on expected loss: