You are investing in a two-fund {bond and stock) portfolio. In order to estimate VaR for the portfolio, you decide to map portfolio returns into the two fund returns. The expected returns for bond and stock funds are 5.3% and 8.7%. respectively. The standard deviations are 22% for stock fund and 9.7% for bond fund. The correlation coefficient between the two is -'| 0%.

What is annual 1% VaR for the portfolio if the portfolio invests 70% in the stock fund and 30% in the bond fund?

Answer rating: 100% (QA)

To calculate the Value at Risk VaR for the portfolio we need to consider the standard deviations expected returns and correlation coefficient between ... View the full answer