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Fifth Star Bank has $2 million position in a 7-year, zero-coupon bond with a face value of $1 427 648.The bond is trading at a
- Fifth Star Bank has $2 million position in a 7-year, zero-coupon bond with a face value of $1 427 648.The bond is trading at a yield to maturity of 8 per cent. The historical mean change in daily yields is 0.0 per cent, and the standard deviation is 10 basis points. Assume the bank desires no more than a 5 per cent chance that yield changes will be greater than this maximum?
- What is the daily earnings at risk for this bond?
- What would be the VAR for the bond for a 5-day period?
- What is meant by value at risk (VAR)? How is VAR related to DEAR in the RiskMetrics Model?
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Financial and managerial accounting
Authors: Jerry J. Weygandt, Paul D. Kimmel, Donald E. Kieso
1st edition
978-1118016114
