NAB holds a portfolio of annual coupon bonds that is valued at $70 million. The modified

duration of the bond portfolio, i.e., duration/(1+yield), is 7 years. Based on the past 2-year

daily data, the Market Risk Analytics team estimates the following statistics for the daily yield

changes:

The daily yield changes have a mean = -0.2% and standard deviation = 0.3%.

There is 5 percent chance that the yield will decrease by more than 0.2% over a day, and

there is also 5 percent chance that the yield will increase by more than 0.8% over a day.

What is the DEAR under 5-percent most adverse market movement scenario for each of the

following positions of NAB:

1) Suppose the bank holds a LONG position in the portfolio and assume the daily yield

changes follow a normal distribution.

S

million (Give answer to 2 decimal places in S millions. Please only provide

the magnitude of DEAR, i.e. without a minus sign.)

2) Suppose the bank holds a SHORT position in the portfolio and assume the daily yield

changes follow a normal distribution:

S

million (Give answer to 2 decimal places in $ millions. Please only provide

the magnitude of DEAR, i.e. without a minus sign.)

3) Suppose the bank holds a LONG position in the portfolio and assume the daily yield

changes follow a normal distribution but are NOT independently distributed across days.

million (Give answer to 2 decimal places in $ millions. Please only provide

the magnitude of DEAR, i.e. without a minus sign.)