(a) Find the value at risk (VaR) for an investment of $100,000 at 5%. (That is, find out how low the value of this investment could be if the worst 5% of outcomes are ruled out.) The investment is expected to grow during the year by 12% with SD 24%. Assume a normal model for the change in value. (b) To reduce the VaR to $14,000, how much more expected growth would be necessary? Assume that the SD of the growth remains 24%. Round to the nearest integer
(a) Find the value at risk (VaR) for an investment of $100,000 at 5%. (That is, find out how low the value of this investment could be if the worst 5% of outcomes are ruled out.) The investment is expected to grow during the year by 12% with SD 24%. Assume a normal model for the change in value. (b) To reduce the VaR to $14,000, how much more expected growth would be necessary? Assume that the SD of the growth remains 24%. Round to the nearest integer
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Question
(a) Find the value at risk (VaR) for an investment of $100,000 at
5%.
(That is, find out how low the value of this investment could be if the worst
5%
of outcomes are ruled out.) The investment is expected to grow during the year by
12%
with SD
24%.
Assume a normal model for the change in value.(b) To reduce the VaR to
$14,000,
how much more expected growth would be necessary? Assume that the SD of the growth remains
24%. Round to the nearest integer
(a) The value at risk (VaR) for an investment of $100,000 at
5%
is
$nothing.
(Round to the nearest thousand dollars as needed.)
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