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.
1) What is the modified duration of the bond?
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)
3) What is the price volatility of this bond?
4) What is the daily earnings at risk for this bond?