Consider the Following Discrete Probability Distributions of Payoffs for 3

question 51

Multiple Choice

Consider the following discrete probability distributions of payoffs for 3 securities that are held in a DI's trading portfolio (payoff amounts shown are in $millions) : What is the expected payoff, the 99% value at risk (VAR) and the expected shortfall (ES) of security Gamma (in millions) ?

• A)+$248; -$2,000; -$2000
• B)-$248; -$20; -$2,000
• C)-$2.150; -$2,150; -$2,150
• D)+$248; -$21.50; -$20.00
• E)±$0.00; -248; -$2,150

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Definitions:

Discount Factor

A multiplier for future cash flows to convert them into present value, reflecting the time value of money.

Contribution Margin

The amount remaining from sales revenue after variable costs are deducted, indicating how much revenue is contributing to fixed costs and profit.

Incremental Annual Net Cash Inflows

The additional cash that flows into a business on an annual basis as a result of a specific action or investment.

Investment Project

A project or activity requiring capital expenditure with the expectation of achieving future profits or benefits.