RSK4805 Assignment 3 (COMPLETE QUESTIONS & ANSWERS) 2024 - DUE 15 August 2024
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Grado
Market Risk Management (RSK4805)
Institución
University Of South Africa
Book
Enterprise Risk Management
RSK4805 Assignment 3 Full Solutions 2024 - DUE 15 August 2024 ;100 % TRUSTED workings, Expert Solved, Explanations and Solutions. For assistance call or W.h.a.t.s.a.p.p us on ...(.+.2.5.4.7.7.9.5.4.0.1.3.2)...........
The profit next year is normally distributed with a mean of 0.8% and a standard
deviation of 2%. To determine how much equity (as a percentage of assets) is needed
to be 99% sure that the equity remains positive, we need to find the z-score for 99%
confidence and apply it to the profit distribution.
1. Given Data:
o Mean (μ) = 0.8%
o Standard Deviation (σ) = 2%
o Confidence Level = 99%
2. Find the z-score for 99% confidence:
o The z-score corresponding to 99% confidence is approximately 2.33.
3. Calculate the required equity:
The profit next year is normally distributed with a mean of 0.8% and a standard
deviation of 2%. To determine how much equity (as a percentage of assets) is needed
to be 99% sure that the equity remains positive, we need to find the z-score for 99%
confidence and apply it to the profit distribution.
4. Given Data:
o Mean (μ) = 0.8%
o Standard Deviation (σ) = 2%
o Confidence Level = 99%
5. Find the z-score for 99% confidence:
o The z-score corresponding to 99% confidence is approximately 2.33.
6. Calculate the required equity:
X=μ−(z×σ)
X=0.8%−4.66%=−3.86%
X=0.8%−4.66%=−3.86%
To have positive equity, the company needs to cover this shortfall, so the
required equity should be at least 3.86% of assets.
Question 1.2: Variance and Standard Deviation of Expected Return (3 marks)
Given the states of the economy with their respective probabilities and returns:
1. Calculate the Expected Return (E[R]):
E[R]=(0.30×13%)+(0.35×8%)+(0.15×2%)+(0.20×4%)
E[R]=3.9%+2.8%+0.3%+0.8%=7.8%
2. Calculate the Variance (Var[R]):
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