The Alpha bank is long in 15 year zero-coupon bond priced at $2 million. The current annual yield on the bond is estimated as 6.5%. Assume that the change in bond yield follows a normal distribution with a mean of zero and a standard deviation of 10 basis points. Calculate the DEAR (Daily Earnings at Risk) for this bond (define adverse market circumstances as the 5% worst case) [please round off decimals].

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The Alpha bank is long in 15 year zero-coupon bond priced at $2 million. The current annual yield on the
bond is estimated as 6.5%. Assume that the change in bond yield follows a normal distribution with a mean
of zero and a standard deviation of 10 basis points. Calculate the DEAR (Daily Earnings at Risk) for this
bond (define adverse market circumstances as the 5% worst case) [please round off decimals].
Transcribed Image Text:The Alpha bank is long in 15 year zero-coupon bond priced at $2 million. The current annual yield on the bond is estimated as 6.5%. Assume that the change in bond yield follows a normal distribution with a mean of zero and a standard deviation of 10 basis points. Calculate the DEAR (Daily Earnings at Risk) for this bond (define adverse market circumstances as the 5% worst case) [please round off decimals].
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