Question

Use the following to answer questions 6 and 7:

You are analyzing the returns of a mutual fund portfolio for the past 5 years.

Year	Return
2014	-30%
2015	-25%
2016	40%
2017	-10%
2018	15%

Question 6: What is the standard deviation of the returns?

Question 7: Use Excel to compute the VaR at the 1% level (you can write the Excel formula as your work).

Answer 1

Question 6:

Year	Return	A = Returns - Mean	A2
2014	-30	-28	784
2015	-25	-23	529
2016	40	42	1764
2017	-10	-8	64
2018	15	17	289
			3430

Mean return = Total return / Number of year

                  = [ -30 -25 +40 - 10 + 15 ] / 5

                 = -10 / 5

                 = -2%

Standard Deviation = [ { Returns - Mean }² / 5 ]^1/2

                            = [ 3430 / 5 ]^1/2

                            = [ 686 ]^1/2

                            = 26.19% Answer

7) VaR = Z * Standard Deviation - Mean

At 1 % level Z = 2.33

Thus VaR = 2.33 * 26.19% - (-2%)

                = 63.03% Answer