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Compute the var measure for bond

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A firm holds a bond with a value of $150 million and an estimated probability of default of 4% over the coming 12 months. The policy of the firm sets its risk limit to 95% VaR (Value at Risk) and 95% ES (expected shortfall) for any individual security. Assume the bond bears no risk of loss due changes in the market price or in the traded value.

(a) Categorise the exact class of risk to which the bond is exposed here.

(b) Compute the 95% VaR measure for this bond and explain your result.

Reference no: EM132847421

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