Question
Q1. Interpret the following statements about Value at Risk so that they can be understood by a nontechnical person: a. VaR of $1.5 million, one
Q1. Interpret the following statements about Value at Risk so that they can be understood by a nontechnical person: a. VaR of $1.5 million, one week, probability=1% b. VaR of $3.75 million, one year, probability= 5%
Q2. Consider a portfolio of $10 million invested in the S&P 500 and $7.5 million invested in US Treasury bonds. The S&P 500 has an expected return of 14% and a standard deviation of 16%. The Treasury bonds have an expected return of 9% and a standard deviation of 8%. Their correlation is 0.35. All figures are stated on an annual basis. a. Find the VaR for one year at a 5% probability. b. Using your answer from part a, find the VaR for one day.
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