In: Finance
City bank has six-year zero coupon bonds with a total face value of $20 million. The current market yield on the bonds is 10 percent. Suppose that during last year the mean change in daily yields on six-year zero-coupon bonds was 25 basis points, while the standard deviation was 30 basis points. Yield changes are assumed to be normally distributed (critical value = 1.96 for 95% confidence interval)
Question: Continue from #1, what is the daily earnings at risk (DEAR) of this bond portfolio?
A. |
$667,284.95 |
|
B. |
$517,263,38 |
|
C. |
$916,363.63 |
|
D. |
$246,110.63 |
|
E. |
$749,021.12 |
Daily earnings at risk (DEAR) of this bond portfolio
=20/1.1^6*6/1.1*(0.25%+1.96*0.30%)*10^6
=517263.38