Find the var for an investment

Reference no: EM131009180

(a) Find the VaR for an investment of +500,000 at 1%. (That is, find out how low the value of this investment could be if we rule out the worst 1% of outcomes.) The investment is expected to grow during the year by 10% with SD 35%. Assume a normal model for the change in value.

(b) How much smaller would the annual SD of the investment need to become in order to reduce the VaR to +200,000? Assume that the expected growth remains 10%.

(c) If this performance is expected to continue for two years, what is the VaR 1at 1%2 if the invest- ment is held for two years rather than one? Use the features of the investment in part (a).

Reference no: EM131009180

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