You invest in a 2 year AAA rated government bond. The bond has a face value of $3000 and a coupon rate of 5% (paid annually). The AAA yield curve is flat at 3% (this implies a discount rate of 3% for all cash flows). Assume all shifts in the yield curve are parallel and that the distribution of 1 day changes in the rates are AR_AAA N(O, 0.0004) (Note: this means that they have mean zero and a standard deviation of 2%). Use the duration approximation to get the 10 day, 99% VaR for this bond. You should provide the bond price, duration and distribution of bond price changes as a minimum amount of working. Use 4-digit decimal places throughout your calculation.

You invest in a 2 year AAA rated government bond. The bond has a face value of $3000 and a coupon rate of 5% (paid annually). The AAA yield curve is flat at 3% (this implies a discount rate of 3% for all cash flows). Assume all shifts in the yield curve are parallel and that the distribution of 1 day changes in the rates are AR_AAA N(O, 0.0004) (Note: this means that they have mean zero and a standard deviation of 2%). Use the duration approximation to get the 10 day, 99% VaR for this bond. You should provide the bond price, duration and distribution of bond price changes as a minimum amount of working. Use 4-digit decimal places throughout your calculation.

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter16: Capital Structure Decisions

Section: Chapter Questions

Problem 10MC: Suppose there is a large probability that L will default on its debt. For the purpose of this...

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