City bank has six-year zero coupon bonds with a total face value of $20 million.The current market yield on the bonds is 10 percent.

What is the daily earnings at risk (DEAR)of this bond portfolio?

Question

City bank has six-year zero coupon bonds with a total face value of $20 million.The current market yield on the bonds is 10 percent.

What is the daily earnings at risk (DEAR)of this bond portfolio?

Quizplus · Accepted Answer

DEAR = (dollar value of position) * (price volatility)
DEAR = ($20,000,000)F1F1F1S1F1F1F10 (5.4545 F1F1F1S1F1F1F10 -0.0020)= -$218,180.

City Bank Has Six-Year Zero Coupon Bonds with a Total