FIN 4700 Risk Appetite Practice Problems Calculon Insurance, Inc. is developing its risk appetite statements and programs. 1. As part of the process the insurer needs to calculate its relative value-at-risk (VaR) of capital & surplus. The current capital & surplus position is $40 million, with daily returns having expected value = $4 million and standard deviation = $160,000. a. Calculate the single-period VaR% at a 95% confidence level. b. Calculate the single-period VaR% at a 99% confidence level. c. Calculate the single-period VaR dollar amount at a 95% confidence level. d. Calculate the single-period VaR dollar amount at a 99% confidence level. e. Calculate the 10-period VaR% at a 95% confidence level. f. Calculate the 10-period VaR dollar amount at a 95% confidence level. 2. Also as part of the risk appetite process, Calculon must know its risk-adjusted return on capital (RAROC). If current underwriting profits are $7 million, investment income on capital is $2.5 million, required capital is $25 million, and the effective tax rate is 23%, calculate Calculon's RAROC. FIN 4700 Risk Appetite Practice Problems Calculon Insurance, Inc. is developing its risk appetite statements and programs. 1. As part of the process the insurer needs to calculate its relative value-at-risk (VaR) of capital & surplus. The current capital & surplus position is $40 million, with daily returns having expected value = $4 million and standard deviation = $160,000. a. Calculate the single-period VaR% at a 95% confidence level. b. Calculate the single-period VaR% at a 99% confidence level. c. Calculate the single-period VaR dollar amount at a 95% confidence level. d. Calculate the single-period VaR dollar amount at a 99% confidence level. e. Calculate the 10-period VaR% at a 95% confidence level. f. Calculate the 10-period VaR dollar amount at a 95% confidence level. 2. Also as part of the risk appetite process, Calculon must know its risk-adjusted return on capital (RAROC). If current underwriting profits are $7 million, investment income on capital is $2.5 million, required capital is $25 million, and the effective tax rate is 23%, calculate Calculon's RAROC