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5. An investor has a $1000 portfolio of three stocks, each of which has a normal distribution of returns. We are told the annual variance
5. An investor has a $1000 portfolio of three stocks, each of which has a normal distribution of returns. We are told the annual variance on the return of his portfolio is 30%. The mean return of each of the assets is 10%. The betas of the three stocks with respect to his portfolio are 1.5, -0.75, and 0.25 respectively. His portfolio weight in the first stock is 1/2. (a) Find his annual VaR(0.05). You can use the fact that z(0.05) = -1.65. (b) Find the contribution of the 3rd stock to his overall VaR. You may use the facts that the portfolio weights sum to 1 and that - Biwi = 1. (c) Using his marginal VaR, find the approximate increase in his VaR if he increases his position in the 2nd stock by $20. 5. An investor has a $1000 portfolio of three stocks, each of which has a normal distribution of returns. We are told the annual variance on the return of his portfolio is 30%. The mean return of each of the assets is 10%. The betas of the three stocks with respect to his portfolio are 1.5, -0.75, and 0.25 respectively. His portfolio weight in the first stock is 1/2. (a) Find his annual VaR(0.05). You can use the fact that z(0.05) = -1.65. (b) Find the contribution of the 3rd stock to his overall VaR. You may use the facts that the portfolio weights sum to 1 and that - Biwi = 1. (c) Using his marginal VaR, find the approximate increase in his VaR if he increases his position in the 2nd stock by $20
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