FREE Trial
Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

You are investing in a two-fund {bond and stock) portfolio. In order to estimate VaR for the portfolio, you decide to map portfolio returns into

You are investing in a two-fund {bond and stock) portfolio. In order to estimate VaR for the portfolio, you decide to map portfolio returns into the two fund returns. The expected returns for bond and stock funds are 5.3% and 8.7%. respectively. The standard deviations are 22% for stock fund and 9.7% for bond fund. The correlation coefficient between the two is -'| 0%.



What is annual 1% VaR for the portfolio if the portfolio invests 70% in the stock fund and 30% in the bond fund?

Step by Step Solution

★★★★★

3.31 Rating (148 Votes )

There are 3 Steps involved in it

Step: 1

To calculate the Value at Risk VaR for the portfolio we need to consider the standard deviations expected returns and correlation coefficient between ... blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Fundamentals of Financial Management

Fundamentals of Financial Management

Authors: Eugene F. Brigham, ‎ Joel F. Houston

11th edition

324422870, 324422873, 978-0324302691

Students also viewed these Finance questions

Question

★★★★★
The capital markets and the ability to raise funds for corporate uses are essential to the US economic systems. For this assignment, imagine that you have $25,000 to invest in US companies. You are...

Answered: 1 week ago

Question

★★★★★
Managing Scope Changes Case Study Scope changes on a project can occur regardless of how well the project is planned or executed. Scope changes can be the result of something that was omitted during...

Answered: 1 week ago

Question

★★★★★
You are investing in a six unit residential property that was built in 1955. It is in good condition. You will be paying $750,000 for it and each unit is occupied and rents, at the market, for $1,000...

Answered: 1 week ago

Question

★★★★★
Hakeem purchased some Apple iPhone. To make a profit he decides to use the formula below profit = iPhone cost * 2.5 Create 2 function. Main() Have the while loop call the profitcalc() and request if...

Answered: 1 week ago

Question

★★★★★
Impact of Transactions Involving Receivables on Statement of Cash Flows From the following list, identify whether the change in the account balance during the year would be added to or deducted from...

Answered: 1 week ago

Question

★★★★★
Give three factors in Facebook's internal environment that managers should be assessing in determining the companys organizational direction. Why are these factors important? LO1

Answered: 1 week ago

Question

★★★★★
Use the plot of the standardized Pearson residuals versus the observation index given in Figure 10.13 to answer the following questions. (a) Does this residual plot suggest there are observations for...

Answered: 1 week ago

Question

★★★★★
On January 1, 2013, Henderson Corporation retired $500,000 of bonds at 99. At the time of retirement, the unamortized premium was $15,000 and unamortized bond issue costs were $5,250. Prepare the...

Answered: 1 week ago

Question

★★★★★
What is wrong with the following Python code?import datetime x = datetime.datetime ( 2 0 2 0 , 5 , 1 7 ) print ( x ) 1 3 The month parameter must be between 1 and 1 2 . The year parameter must be...

Answered: 1 week ago

Question

★★★★★
One technique for limiting fault current is to place reactance in series with the generators. Such reactance can be modeled in PowerWorld Simulator by increasing the value of the generator's positive...

Answered: 1 week ago

Question

★★★★★
The Up and Coming Corporation's common stock has a beta of 1.95. If the risk-free rate is 0.04 and the expected return on the market is 0.09, what is the company's cost of equity capital? Enter the...

Answered: 1 week ago

Question

★★★★★
A thyroid cancer patient ingests a single dose of radioactive iodine-131 to kill the cancer cells. Iodine-131 has an effective half-life of approximately 7.71 days--some is lost to radioactive decay,...

Answered: 1 week ago

Question

★★★★★
Question 9 3 pts Currently, the Bright Ltd is an all-equity company. Earnings before interest and taxes (EBIT) for the company is expected to be $73,084 forever, and the cost of capital is currently...

Answered: 1 week ago

Question

★★★★★
A state fisheries commission wants to estimate the number of bass caught in a given lake during a season in order to restock the lake with the appropriate number of young fish. The commission could...

Answered: 1 week ago

Question

★★★★★
QUESTION 4 The following Trial Balance was extracted from the books of Mega Enterprise as at 31 December 2020. Particulars Debit (RM) Credit (RM) Capital 215,000 Duty on purchases 2,300 Insurance...

Answered: 1 week ago

Question

★★★★★
As the safety manager on a construction site, you have many roles. At the site, we are working we must approve the trenching and excavation plans for the subcontractors performing the work. Looking...

Answered: 1 week ago

Question

★★★★★
Total production of 1,000 units of finished goods required 3,000 actual parts at $2.25 per part. The standard is 2.9 parts per unit of finished goods, at a standard price of $2.30 per part. Which of...

Answered: 1 week ago

Question

★★★★★
Quality Chicken grows and processes chickens. Each chicken is disassembled into five main parts. Information pertaining to production in July 2012 is: Joint cost of production in July 2012 was $50. A...

Answered: 1 week ago

Question

★★★★★
Refer back to the FULL COMPANY REPORT and scroll down to the 5 Yr Annual Balance Sheet section. Does it appear that MSFT has been repurchasing any stock, or has it been issuing new stock? Access the...

Answered: 1 week ago

Question

★★★★★
A currency trader observes that in the spot exchange market, 1 U.S. dollar can be exchanged for 4.0828 Israeli shekels or for 111.23 Japanese yen. What is the crossexchange rate between the yen and...

Answered: 1 week ago

Question

★★★★★
Excess capacity Krogh Lumbers 2005 financial statements are shown here. a. Assume that the company was operating at full capacity in 2005 with regard to all items except fixed assets; fixed assets in...

Answered: 1 week ago

Question

★★★★★
=+b. A sample of ultrasonic humidifiers of one particular brand was selected for which the observations on maximum output of moisture (oz) in a controlled chamber were 14.0, 14.3, 12.2, and

Answered: 1 week ago

Question

★★★★★
=+a. Estimate the true average difference in translation between dominant and nondominant arms for pitchers in a way that conveys information about reliability and precision. Interpret the resulting...

Answered: 1 week ago

Question

★★★★★
=+58. Dentists make many people nervous (even more so than statisticians!). To assess any effect of such nervousness on blood pressure, the systolic blood pressure of each of 60 subjects was measured...

Answered: 1 week ago

Previous Question Next Question