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.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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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
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