1. A portfolio has an expected return of 10% and a standard deviation of 20%. As
ID: 2734964 • Letter: 1
Question
1. A portfolio has an expected return of 10% and a standard deviation of 20%. Assume normal distribution, what is Value at Risk (VaR) at 5% for this stock?
A. -40.21%
B. -32.25%
C. -22.90%
D. -28.32%
2. An investor buys $10,000 worth of a stock priced at $50 per share using 50% initial margin. The broker charges 10% on the margin loan and requires a 30% maintenance margin. In one year the investor gets a margin call. At the time of the margin call the stock's price must have been ____.
A. $33.15
B. $30.45
C. $40.00
D. $39.29
Explanation / Answer
ANSWER 1:- 22.9
min return with portfolio = -0.23
value of portfolio = 100 * (-0.23 + 1) = 77.10
value at risk = 100-77.10= 22.9
ANSWER 2:
A margin call will occur when equity value is 30% or less
0.3 =[( $ 10000/$50)P - $10000*0.5 - 500]/200P
0.3 = [ 200P - 5000-500]/200P
60P = 200P -5500
140P = 5500
p = 39.29
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