Question

In: Finance

Consider stock A and stock B whose future returns one year from now are normally distributed....

Consider stock A and stock B whose future returns one year from now are normally distributed. Return on A has a mean of 8% and a standard deviation of 20%. Return on B has a mean of 4% and a standard deviation of 10%. Then, 5%-VaR (5%-lowest return) of stock A is lower than that of stock B.

Group of answer choices

True / False

Solutions

Expert Solution

We see that 5% VaR for A=8%-1.645*20%=-24.900%

We see that 5% VaR for B=4%-1.645*10%=-12.450%

jeff jeffy answered 2 years ago
Next > < Previous

Related Solutions

There is a portfolio whose current value is $10 million. Its monthly returns are normally distributed...
There is a portfolio whose current value is $10 million. Its monthly returns are normally distributed with a mean of 3.7% and a standard deviation of 0.5%. Compute the daily 99% and 95% VaRs of the portfolio Interpret the results of the VaRs above
Consider a Property with expected future NOI of $25,000 per year for the next 5 years (starting one year from now).
Consider a Property with expected future NOI of $25,000 per year for the next 5 years (starting one year from now). After that, the operating cash flow will step up 20% to $30,000 for the following 5 years. Assume no capital- and leasing expenses.(a) If you expect to sell the property 10 years from now at a going-out cap rate of 10%, what is the value of the property if the required return is 12%?(b) Now suppose the seller of...
The following represents the probability distribution of future returns for stock A and stock B. State...
The following represents the probability distribution of future returns for stock A and stock B. State of Economy Probability Return on Security A Return on Security B Boom 0.20 18% 4% Normal 0.60 8% 8% Recession 0.20 −4% 12% a. What is the expected return for Security A and Security B? b. What is the expected return on a portfolio consisting of 50% investment in Security A and 50% in security B? c. What is the standard deviation of a...
Assume that the returns from an asset are normally distributed. The average annual return for this...
Assume that the returns from an asset are normally distributed. The average annual return for this asset over a specific period was 14.7 percent and the standard deviation of those returns in this period was 43.59 percent. a. What is the approximate probability that your money will double in value in a single year? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b. What about triple in value? (Do...
Assume that the returns from an asset are normally distributed. The average annual return for this...
Assume that the returns from an asset are normally distributed. The average annual return for this asset over a specific period was 17.2 percent and the standard deviation of those returns in this period was 43.53 percent. a. What is the approximate probability that your money will double in value in a single year? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b. What about triple in value? (Do...
When returns from a project can be assumed to be normally distributed, such as those shown...
When returns from a project can be assumed to be normally distributed, such as those shown in Figure 13-6 (represented by a symmetrical, bell-shaped curve), the areas under the curve can be determined from statistical tables based on standard deviations. For example, 68.26 percent of the distribution will fall within one standard deviation of the expected value ( D¯¯¯D¯ ± 1σ). Similarly, 95.44 percent will fall within two standard deviations ( D¯¯¯D¯  ± 2σ), and so on. An abbreviated table of...
The annual returns from a particular mutual fund are believed to be normally distributed. The following...
The annual returns from a particular mutual fund are believed to be normally distributed. The following table lists the annual returns for this fund over a 20-year period. Year Return (%) Year Return (%) 1 6.2 11 5.4 2 11.3 12 26.0 3 16.1 13 13.5 4 16.9 14 24.2 5 9.8 15 –1.5 6 18.3 16 1.4 7 11.2 17 15.7 8 –12.1 18 11.8 9 19.2 19 1.9 10 17.6 20 17.8 a) Determine the mean and standard...
what is the total future value six years from now of $50 received in one year,...
what is the total future value six years from now of $50 received in one year, 200received in two years and $800 received in 6 years if the discount rate is 8%
VAR Calculation A firm has a portfolio composed of stock A and B with normally distributed...
VAR Calculation A firm has a portfolio composed of stock A and B with normally distributed returns. Stock A has an annual expected return of 15% and annual volatility of 20%. The firm has a position of $100 million in stock A. Stock B has an annual expected return of 25% and an annual volatility of 30% as well. The firm has a position of $50 million in stock B. The correlation coefficient between the returns of these two stocks...
Stocks A and B have the following historical returns: Year Stock A's Returns, rA Stock B's...
Stocks A and B have the following historical returns: Year Stock A's Returns, rA Stock B's Returns, rB 2011 - 22.40% - 15.60% 2012 27.75 19.70 2013 10.00 37.00 2014 - 5.00 - 9.90 2015 23.75 2.90 a. Calculate the average rate of return for stock A during the period 2011 through 2015. Round your answer to two decimal places. %_________ Calculate the average rate of return for stock B during the period 2011 through 2015. Round your answer to...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT