What is the modified duration of the bond

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Problem: Follow Bank has a $1 million position in a five-year, zero-coupon bond with a face value of $1, 402, 552. The bond is trading at a yield to maturity of 7.00 percent. The historical mean change in daily yields is 0.0 percent and the Standard deviation is 12 basis points.

Required:

Question 1: What is the modified duration of the bond?

Question 2: What is the maximum adverse daily yield move given that we desire no more than a 1 percent chance that yield changes will be greater than this maximum? (critical statistics = plusminus 2.33)

Question 3: What is the price volatility of this bond?

Question 4: What is the daily earnings at risk for this bond?

Reference no: EM132423205

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