Question $7$

Consider a long position of $$100$ million in a par $10-$year note, with duration and modified

duration of $7\mathrm{.}80$ and $7\mathrm{.}36$ years. Convexity is $69\mathrm{.}74$ year$-$squared. Payments are annual.

Interest rates are at $6\%$ and the volatility of changes in interest rates is $0\mathrm{.}25\%$ over the next

month. Assuming normal distributions for yields, Ignoring convexity, the VAR of the position

is:

$$3\mathrm{.}99m$

$$3\mathrm{.}21m$

$$1\mathrm{.}84m$

$$3\mathrm{.}03m$