What is the highest yield change expected

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Reference no: EM132008071

A bank has a $5 million market value position in a 8-year, zero coupon bond. The bond is yielding 8%. The mean change in the daily yields of the 8-year, zero coupon bond has been 3 basis points over the past year with a standard deviation of 6 basis points. Using these data and assuming the yield changes are normally distributed: (a) What is the highest yield change expected if a 99 percent confidence level is required? (b) What is the daily earnings at risk (DEAR) using a 99 percent confidence level? (c) Please interpret in words the meaning of the DEAR you calculated in part (b).

Reference no: EM132008071

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