An asset annual's return, R, depends on two states of the economy. When the economy is...

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An asset annual's return, R, depends on two states of the economy. When the economy is in expansion, the return is exponentially distributed with mean 7%, and when the economy is in recession, the return is exponentially distributed with mean 2%. There is a probability of 65% that the economy will be in expansion. 1.1 Find expressions and evaluate for: a) the variance b) the downside semi-variance for value of k= 4. c) Define the 5% Value at Risk for this asset. d) the expected shortfall below a return of k conditional on a shortfall occurring for value of k-4. (02 marks) (02 marks) (03 marks) (05 marks) An asset annual's return, R, depends on two states of the economy. When the economy is in expansion, the return is exponentially distributed with mean 7%, and when the economy is in recession, the return is exponentially distributed with mean 2%. There is a probability of 65% that the economy will be in expansion. 1.1 Find expressions and evaluate for: a) the variance b) the downside semi-variance for value of k= 4. c) Define the 5% Value at Risk for this asset. d) the expected shortfall below a return of k conditional on a shortfall occurring for value of k-4. (02 marks) (02 marks) (03 marks) (05 marks)

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Sure I can help you with that Lets go step by step a To find the variance we can use the formula var... View the full answer