A portfolio consists of $15 million of asset A (for which annual expected return is 10% and annual return volatility is 25%), $15 million of asset B (for which annual expected return is 15% and annual return volatility is 30%), and $20 million of asset C (for which annual expected return is 20% and annual return volatility is 35%). The return correlation between each pairing of assets A, B and C is 0.2. Assume the annual portfolio return is normally distributed. What is the 1-year 5% Value-at-Risk of the portfolio (i.e., there is a 5% probability that the portfolio will suffer a loss greater than what dollar value for the year)? a. $1.24 million b. $3.86 million c. $9.75 million d. $19.50 million e. None of the above
A portfolio consists of $15 million of asset A (for which annual expected return is 10% and annual return volatility is 25%), $15 million of asset B (for which annual expected return is 15% and annual return volatility is 30%), and $20 million of asset C (for which annual expected return is 20% and annual return volatility is 35%). The return correlation between each pairing of assets A, B and C is 0.2. Assume the annual portfolio return is normally distributed. What is the 1-year 5% Value-at-Risk of the portfolio (i.e., there is a 5% probability that the portfolio will suffer a loss greater than what dollar value for the year)? a. $1.24 million b. $3.86 million c. $9.75 million d. $19.50 million e. None of the above
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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A portfolio consists of $15 million of asset A (for which annual expected return is 10% and annual return volatility is 25%), $15 million of asset B (for which annual expected return is 15% and annual return volatility is 30%), and $20 million of asset C (for which annual expected return is 20% and annual return volatility is 35%). The return correlation between each pairing of assets A, B and C is 0.2. Assume the annual portfolio return is
What is the 1-year 5% Value-at-Risk of the portfolio (i.e., there is a 5% probability that the portfolio will suffer a loss greater than what dollar value for the year)?
| a. |
$1.24 million |
|
| b. |
$3.86 million |
|
| c. |
$9.75 million |
|
| d. |
$19.50 million |
|
| e. |
None of the above |
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