23) Which of the following statements is not true about historical simulation approach using weighing of observations? Recent observations are given more weight than more distant observations in the past In order to find VaR at a given confidence level, weights are summed up starting from the worst outcome until the required percentile of the distribution is reached It incorporates volatility updating procedures such as EWMA The method reflects better current volatilities and macroeconomic conditions as compared to the basic approach 24) The model building approach as a method of defining market risk VaR: Is based on Modigliani and Miller theory. Is based on Markowitz's portfolio theory Is based on Cooke ratio regarding the capital requirements Is based on the nonlinear products variances and covariances Volatility of the price of a Google share 26) Suppose your portfolio consists of two investments. The 99% VaR for the first investment is $1 million, whereas the 99% VaR for the second investment is $3 million. The 99% VaR of the portfolio shows that there are benefits to diversification. This means that 99% VaR of the portfolio is: Less than $4 million More than $4 million Less than $3 million Cannot be determined 25) Suppose that we have bought $50 million of Google shares. The daily volatility of the Google stock is 2%. Changes in the value of the stock are normally distributed. The one-day 99% market risk VaR using the model-building approach is (hint: N(-2.33) = 0.01): $2.33 million $1 million $2.66 million Depends on yearly volatility of the price of a Google share - In order to estimate the probability of default of a certain corporation, one can use which of the following variables or methodologies: The corporation's credit rating Altman's Z-score CDS spread All of them