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Suppose You Are the Risk Manager of a Bank with a Trading

question 49

Essay

Suppose you are the risk manager of a bank with a trading portfolio of $1 billion. You have just received the latest information about the portfolio allocations made by the trading branch of your bank, who tell you that the portfolio will earn a premium return of 23% over the risk free rate in one year. You have carried out an independent analysis, and find that the return on your portfolio over the next ten days is normally distributed with a mean of 0.77% and a standard deviation of 5%. Find the ten day 1% value at risk for this portfolio.


Definitions:

Debt-To-Equity Ratio

A financial ratio indicating the relative proportion of a company's assets financed by debt compared to shareholder equity.

Common Stock

An ownership share in a corporation, representing a claim on part of the company's profits and assets.

Market Price

The present cost at which a product or service is available for purchase or sale in a specific marketplace.

Times Interest Earned

A financial ratio that measures a company's ability to meet its interest obligations from operating earnings, an indicator of financial stability.

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