The following questions are based on Chapter 15 Market Risk.

You might need the following information:

For a Standard Normal Distribution, we have:

z = 2.576 for cumulative probability of 0.995

z = 2.326 for cumulative probability of 0.990

z = 1.960 for cumulative probability of 0.975

z = 1.645 for cumulative probability of 0.950

z = 1.282 for cumulative probability of 0.900

Question 5 (4 points). The current market yield on the bonds is 5 percent. The daily yield changes are assumed to be normally distributed, with mean of zero and standard deviation of 18%. The potential adverse move in daily yields is defined as the expected yield change when a 99.5% percent confidence (one-tailed) limit is used. What is the 120-day VAR of a bond portfolio that consists of 2-year 5% coupon bonds with a face value of $125 million (bond yield = 5%)?