QUESTION 4 You work as a Risk Analyst at BCD Bank. Your boss has asked you to compute the maximum loss the firm can lose on its K1 million Equity Portfolio. The portfolio tracks the LUSE index on any single day. Suppose that daily returns on the LUSE index are normally distributed with a mean of 0 per cent per day and a 1% per day standard deviation. According to the bank policy, any portfolio with a 1 day VaR greater than 5% of the portfolio value should be divested. Required: 900 301 a) Calculate the maximum loss in a single day the bank could incur with a 99% confidence level. (2 marks) b) Interpret your answer (a) above (2 marks) c) Make a recommendation to your boss in line with the company risk policy stated in the paragraph (1 mark)