Assume that the standard deviation of daily returns for a particular stock in a recent historical period is 2 percent. Also, assume that the 95 percent confidence level is desired to estimate the maximum one-day loss. If the daily returns are normally distributed, the lower boundary (the left tail of the probability distribution) is approximately 1.65 standard deviations away from the expected outcome. Assume that the expected daily return of the stock is 0.02 percent.

a. Estimate the lower boundary of loss.

b. If an investor has a $20 million investment in that stock, estimate the maximum dollar one-day loss for this investor.

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