A firm has a portfolio composed of stock A and B with normally distributed returns. Stock A has an annual expected return of 15% and annual volatility of 20%. The firm has a position of $100 million in stock A. Stock B has an annual expected return of 25% and an annual volatility of 30% as well. The firm has a position of $50 million in stock B. The correlation coefficient between the returns of these two stocks is 0.3. What is the 5% daily VAR for the portfolio? Assume 365 days per year.
A firm has a portfolio composed of stock A and B with normally distributed returns. Stock A has an annual expected return of 15% and annual volatility of 20%. The firm has a position of $100 million in stock A. Stock B has an annual expected return of 25% and an annual volatility of 30% as well. The firm has a position of $50 million in stock B. The correlation coefficient between the returns of these two stocks is 0.3. What is the 5% daily VAR for the portfolio? Assume 365 days per year.
Principles of Macroeconomics (MindTap Course List)
7th Edition
ISBN:9781285165912
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter14: The Basic Tools Of Finance
Section: Chapter Questions
Problem 5QCMC
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D&R A3
6-1
Question 6. VAR Calculation
A firm has a portfolio composed of stock A and B with
- What is the 5% daily VAR for the portfolio? Assume 365 days per year.
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