Question
PLEASE SHOW ME THE STEP BY STEP FOR THE CALCULATION AND GIVE EXPLANATION 1. Suppose a bond has a value of $ 2 million and
PLEASE SHOW ME THE STEP BY STEP FOR THE CALCULATION AND GIVE EXPLANATION 1. Suppose a bond has a value of $ 2 million and the duration is 4 years. The current interest rate is 10%. If the interest rate changes by 1% (interest rate becomes 11%), what is the new value for the bond?
A. $1,623 B. $1963 C. $1,801 D. $1,927 E. None above
2. Ceteris paribus, if we expect that interest rate is going to increase, we prefer to have
A. Positive duration gap B. Negative maturity gap C. Positive repricing gap D. Positive duration gap and positive repricing gap E. None above
3. Suppose a bank calculates its daily 90% Value at Risk as $1 million. What does it mean?
A. If tomorrow is a bad day, the bank will experience a loss of $1 million with a probability of 10% B. If tomorrow is a bad day, the bank will experience a maximum loss of $1 million with a probability of 10% C. If tomorrow is a bad day, the bank will experience a maximum loss of $1 million with a probability of 90% D. If tomorrow is a bad day, the bank will experience a minimum loss of $1 million with a probability of 90% E. If tomorrow is a bad day, the bank will experience a maximum loss of $1 million with a probability of 10 to 90%
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