Question

Problem 13-17 Value-at-Risk (VaR) Statistic (LO4, CFA6) Your portfolio allocates equal amounts to three stocks. All three stocks have the same mean annual return of 12 percent. Annual return standard deviations for these three stocks are 29 percent, 39 percent, and 49 percent. The return correlations among all three stocks are zero. What is the smallest expected loss for your portfolio in the coming year with a probability of 5 percent? (A negative value should be indicated by a minus sign. Do not round intermediate calculations. Round the z-score value to 3 decimal places when calculating your answer. Enter your answer as a percent rounded to 2 decimal places.) Smallest expected loss

Answer 1

Smallest expected loss with a probability of 5 per cent is given as equal to=12%-1.645*sqrt((1/3*29%)^2+(1/3*39%)^2+(1/3*49%)^2)=-25.84%