a Commonwealth Bank of Australia (CBA) has reported a 99% Value at Risk (VaR) of 3.09% over a 1268 trading period. What does this mean? (3 marks) b. Why do some investors prefer to use Lower Partial Standard Deviations (LPSD) as compared to the standard deviation? (3 marks) c. Why will the standard deviation not be a good measure of risk when returns are negatively skewed? (3 marks) d. What are the risk implications for an investor for a returns series that exhibits fat tails? (3 marks) e. A price weighted index places more weight on stocks with a higher price, whilst a value weighted index places more weight on stocks with a higher market capitalization. Discuss (3 marks) 1. Price weighted indices have been criticized because they introduce a downward bias by reducing the weight of growing companies whose stock split. What does this mean and why does the underweighting occur? (3 marks) Examiners: Benjamin Ameah, Elikplimi Komia Agbloyer and Kofi A. Osel Page 4 of What should be the risk premium and return on a stock with a Beta of zero under the Capital Asset Pricing Model (CAPM)? What about the risk premium and return on a stock with a Beta of I? (3 marks) h. In a world of certainty, investors will always invest in the asset with the highest retum. In the real world, investors hold a diversified portfolio of securities. Why is this the case? (3 marks) i. Theoretically, returns on stocks or assets can be negatively correlated. In the real world, however, we usually encounter only positive correlations. Why may this be the case