Question
Daily returns of Equity A are independently and continuously distributed. Its VaR 5% is found to be -2%. Further research indicates the returns are symmetrically
Daily returns of Equity A are independently and continuously distributed. Its VaR 5% is found to be -2%. Further research indicates the returns are symmetrically distributed at their mean return of 1%. (i) [2 marks] Provided that the return is -2% on day 1, what is the probability that the return will be lower than -2% on day 2? (ii) [3 marks] Calculate the probability that the return on one day is greater than 4%. Explain rationales of all numerical information you use that is not directly given. (iii) [5 marks] You are told that the returns actually follow a Normal distribution. Using the given information to find the population standard deviation of this Normal distribution.
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