You are a Credit Risk Analyst at Fidelity Associates. Your manager asked you to evaluate the conditional variance of a zero bond under the following assumptions regarding a GARCH(1,1) and other information:

• Parameter estimates: = 0.0001; = 0.01; = 0.97.

• Pricing data and assumptions: The zero-bond price at the close of trading yesterday was $800 and its volatility (Standard deviation) was estimated at 1.3% per day. The zero-bond price at the close of the trading session today is expected to be $810. Assume that the closing price will be the expected closing price will be the realized closing price.

Using the above information, the conditional variance is closest to

a.

2.5013%

b.

None of the other answers provided is correct.

c.

1.6291%

d.

0.0171%

e.

0.0265%