You own a $1,000,000 principal value of a bond. The average one-day change in the price of the bond +0.3% of the price (i.e. 0.003). The standard deviation of one-day price changes is 0.5% of the price (i.e. 0.005). (8 points)

a. What is the 1-day VaR of this holding at the 99% confidence level, assuming that the Expected Loss IS significantly different from zero [assume a normal distribution of price changes, find the z_confidence level in Excel =NORM.S.INV(.99) ]?

b. What is the 1-day VaR of this holding at the 99% confidence level, assuming that Expected Loss IS NOT significantly different from zero [assume a normal distribution of price changes, find the z_confidence level in Excel =NORM.S.INV(.99) ]?

c. In general terms, how do you decide whether or not Expected Loss is significantly different from zero?

d. Based on part a, what is the 10-day VaR?