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      Related Posts
      0.5
      =$9,759,000. Essentially, the question requires us to calculate the VaR of a bond.
      The VaR of a fixed income instrument is given by Duration x Interest Rate x Volatility of the interest rate x z-factor corresponding to the confidence level.
      In this case, since the question requires us to calculate the value "closest to" the correct answer, we can use an estimate for the modified duration of the bond as equal to 0.5 years/(1+r) = 0.5/1.05 = 0.47 years. The VaR would be given by 0.5 * 5% * 15% * 2.326 * sqrt(1/250) * 9,759,000 = $5,384 which is closest to $5,500.
      Therefore Choice 'a' is the correct answer. Note that we have to multiply by sqrt(1/250) as the given volatility is annual and the question is asking for daily VaR. All other answers are incorrect.

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