(a) Find the value at risk (VaR) for an investment of $100,000 at 5%. (That is, find out how low the value of this investment could be if the worst 5% of outcomes are ruled out.) The investment is expected to grow during the year by 12% with SD 24%. Assume a normal model for the change in value. (b) To reduce the VaR to $14,000, how much more expected growth would be necessary? Assume that the SD of the growth remains 24%. Round to the nearest integer

(a) Find the value at risk (VaR) for an investment of $100,000 at 5%. (That is, find out how low the value of this investment could be if the worst 5% of outcomes are ruled out.) The investment is expected to grow during the year by 12% with SD 24%. Assume a normal model for the change in value. (b) To reduce the VaR to $14,000, how much more expected growth would be necessary? Assume that the SD of the growth remains 24%. Round to the nearest integer

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter14: Real Options

Section: Chapter Questions

Problem 4MC

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Question

(a) Find the value at risk (VaR) for an investment of $100,000 at

5%.

(That is, find out how low the value of this investment could be if the worst

of outcomes are ruled out.) The investment is expected to grow during the year by

12%

with SD

24%.

Assume a normal model for the change in value.

(b) To reduce the VaR to

$14,000,

how much more expected growth would be necessary? Assume that the SD of the growth remains

24%. Round to the nearest integer

(a) The value at risk (VaR) for an investment of $100,000 at

$nothing.

(Round to the nearest thousand dollars as needed.)

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