my bad, 50% each
a. 5.55%
b. 0.6%
portfolio size needed as well.
Assuming 50% weight.
portfolio std dev = 1.7%
portfolio expected return = 3%
5% VAR = 3% - 1.65.33(1.7) = 0.195%
1% VAR = 3% - 2.33(1.7) = 0.961%
Assuming you standard deviations are quarterly as well
E® = 3%
Portfolio standard deviation is 4.21%
5% Quarterly VAR = 3% - 1.65(4.21%) = -3.95%
1% Monthly VAR = 1% - 2.33(2.43%) = -4.67%
Assuming the standard deviations in your question are annualized, then
A) Value of Portfolio [3 - 1.645(4.213 / (4^(0.5))] = Value [- 0.465%]
B) Value of Portfolio [(3/3) - 2.33( 4.213 / (12^(0.5))] = Value [-1.834%]
And i get the same values as MGurn under the assumption that the standard deviations are quarterly.
Wouldn’t quarterly VAR = 3% - 1.96 (4.21%) = -5.25%
90% would be 1.65, 95% is 1.96 and 99% is 2.33…correct me if wrong.
I think the answer to your question probably revolves around this being a one-tailed (left tail)calculation rather than a 2-tailed one.

I think the answer to your question probably revolves around this being a one-tailed (left tail)calculation rather than a 2-tailed one.
VAR is always one tailed.
Exactly… so, for the 5% probability 1.96 is the correct number in a two tailed test (2.5% in each tail). For VAR, all of the 5% is in the left tail, and the z critical is between -1.6 & -1.7.

Exactly… so, for the 5% probability 1.96 is the correct number in a two tailed test (2.5% in each tail). For VAR, all of the 5% is in the left tail, and the z critical is between -1.6 & -1.7.
ah ok. Someone pls respond with correct number for different probabilities.
5% probability is 1.65
1% probability is 2.33
i know i didn’t convert to yearly… mine is probably wrong.
Monthly
E® = 3
I get SD = 4.43
3 - 1.65*4.43 = -4.31%
Daily
E® = (1.03)^(1/3)-1 = 0.99%
SD = 4.43 / (3)^0.5 = 2.56
0.99 - 2.33*2.56 = -5.00%
No rounding and assuming SDs are quoting quarterly
i am not going to mention which question, if any, of these was on the test… but, hopefully those who spent the time to go through these found it helpful on Saturday, regardless of whether any of these were on the test or not
i am not going to mention which question, if any, of these was on the test… but, hopefully those who spent the time to go through these found it helpful for Saturday, regardless of whether any of these were on the test or not