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5. [Total: 15 marks] Consider a position consisting of a $500,000 investment in asset A and a $700,000 investment in asset B. Suppose that the

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5. [Total: 15 marks] Consider a position consisting of a $500,000 investment in asset A and a $700,000 investment in asset B. Suppose that the daily volatilities of these two assets are 2% and 1.5% respectively, and that the correlation coefficient between their returns is 0.8. (a) [6 marks] What is the 10-day 97.5% VaR for the portfolio? (b) [9 marks) How much does diversification reduce the VaR

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