Question

14.Each of two investment projects has a probability of 0.03 of a loss of $20 million and a probability of 0.97 of a loss of $2 million during a one-year period. They are independent of each other. What are the 99% VaR and expected shortfall (ES) for a portfolio consisting of the two investments? VaR = $20 million; ES = $0.2362 million ($236,200) VaR = $22 million; ES = $23.62 million VaR = $20 million; ES = $23.62 million VaR = $22 million; ES = $0.2362 million ($236,200)

15.Assume that daily portfolio returns are independently and identically normally distributed. Dylan Shaw, a new quantitative analyst, has been asked by the portfolio manager to calculate portfolio VaRs for 10-, 15-, 20-, and 25-day periods. The portfolio manager notices something wrong with Dylan's calculations. Which one of following VaRs on this portfolio is inconsistent with the others? 10-day VaR = $316M 15-day VaR = $465M 20-day VaR = $537M 25-day VaR = $600M

Answer 1

Answer 14:

Option B is correct(VaR = $22 million; ES = $23.62 million)

Explanation:

Expected shortfall has to be > VaR &

As Var can be either ==> 20 or 22,

Expected shortfall will be==> 23.62 million.

Therefore, we can consider only B & C options are possible.

Now, we get that Option C is incorrect because VaR at 99 percentage will be Greater Than the Var at 3% probability.

---------------

Hope this will help, please comment if you need any further explanation, Please Encourage us by Up Voting the Answer which is Very Helpful to us. Thank You!
-------------------------------