A bank has a 5 million market value position in a 8-year, Ask an Expert

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A bank has a $5 million market value position in a 8-year, zero coupon bond. The bond is yielding 8%. The mean change in the daily yields of the 8-year, zero coupon bond has been 3 basis points over the past year with a standard deviation of 6 basis points. Using these data and assuming the yield changes are normally distributed: (a) What is the highest yield change expected if a 99 percent confidence level is required? (b) What is the daily earnings at risk (DEAR) using a 99 percent confidence level? (c) Please interpret in words the meaning of the DEAR you calculated in part (b).

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Financial Management, Finance

Category:- Financial Management
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