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You have 100 shares of CBA company
You have 100 shares of CBA company. The current price of the stock is USD 22, the issuing price was USD 20. The daily volatility of the stock is 0.7 %. The value at risk (VaR) figure on 95 % confidence level (assuming normal distribution of returns) on a 10 day horizon is closest to: Select one: O a. 73 O b. 230 O c. 254 O d. 82
There are two simple positions (one in assets and on in liabilities) with cash flows as illustrated in the table below. We assume a flat yield curve with yields of 1,8 % across all maturities. The corresponding NPVs are the table as well. 1Y 2Y 3Y 2 10 Asset Liability Capital gain NPV 100,579 99,7053 0,8737 2 101,5 Immediately after the positions were settled, the yield curve experienced a parallel downward shift leading to yields of 1,5 % for all maturities. The market value of the capital gain
The current bond price is 99.65, the remaining time to maturity is 4.4 years and the modified duration of this bond is 3.5 years. If the yields are expected to decline by 75 bps, the expected new price is: Select one: O a. 96.3616 O b. 102.2658 O c. 97.0342 O d. 102.9385
Expert Solution
VaR (X%) = [E(R)-zX%σ]*Value of Portfolio at the begining
Where:
VaR(X%) = the X% probability value at risk
VaR(5%) = the 5% probability value at risk
E(R) = Expected Return (NOT GIVEN IN QUESTION, THEREFORE, ASSUMED TO BE ZERO)
zX% = the critical z-value based on normal distribution & selected X% probability
= -1.65
σDAILY = Standard deviation on percentage basis = 0.7%
GIVEN:
zX% = -1.65
σ = 0.7%% (DAILY)
Given a 95% confidence level,
a) daily % VaR
VaR(5%)DAILY = [0-1.65(0.007)]
= -0.01155
Or = -1.155% (or 1.155% since negative sign is implied)
b) 10-DAY %VaR
VaR(5%)10-DAY = VaR(5%)DAILY*√10
= 0.01155*√10
= 0.03652
Or = 3.652% (negative sign is implied)
VaR in Dollar Terms:
VaR(% terms)*Portfolio value at the beginning
= 0.03652*(20*100)
= $73.04
The VaR on 95% confidence level (assuming Normal Distribution of returns) on a 10 day horizon is closest to: 73 (OPTION a)
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