Assume you have a portfolio consisting of a $400,000 investment in stock A and a $600,000 investment
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Assume you have a portfolio consisting of a $400,000 investment in stock A and a $600,000 investment in stock B. Suppose that the daily volatilities of these two assets are 2% and 1.5%, respectively, and that the coefficient of correlation between their returns is 0.7.
(a) What is the 5-day 97.5% Value at risk (VaR) for the portfolio?
(b) Briefly explain the meaning of the VaR you just calculated.
(c) By how much does diversification reduce the VaR?
Related Book For
Financial Management Theory and Practice
ISBN: 978-0176517304
2nd Canadian edition
Authors: Eugene Brigham, Michael Ehrhardt, Jerome Gessaroli, Richard Nason
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