Question
Consider two asset classes: Stocks and Bonds. You estimate the following parameters for these two asset class funds. correlation matrix b/n Stocks and Bonds E(r)
Consider two asset classes: Stocks and Bonds. You estimate the following parameters for these two asset class funds. correlation matrix b/n Stocks and Bonds E(r) sd(r) Stocks Bonds Stocks 9% 15% 1 0.5 Bonds 8% 9% 0.5 1 Consider a $110,000 portfolio consisting of $40,000 in Stocks and $70,000 in Bonds. So, the portfolio is 36.36% in Stocks and 63.64% in Bonds. Given the expected return on the portfolio is 8.36%, and the standard deviation of the portfolio return is 9.68%, what is the 2.5% value at risk (note: the 95% confidence interval lower limit on the portfolio value is the value of the portfolio at this level of loss)? (use 2 decimals without $, so a loss of -$10.00 is -10.00) with steps please
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