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Unformatted text preview: fundamental factor driving the promised return on a loan. e) What other ways are there to evaluate the return on a loan? Explain briefly. Theres RAROC (risk adjusted return on a capital) which can be calculated by dividing the one-year income on a loan by loan (asset) risk or value at risk. 2. Suppose that the change in the value of a portfolio over a 1 month time horizon is normal with a mean of 0 and a standard deviation of $50 million. Whats the 1 month 99% VaR? 1 month 99% VaR=50*2.325=116.25 million 3. Suppose that the standard deviation of daily changes in the value of a portfolio is 5 million and the 1 st order autocorrelation of daily changes is 0.2. a) Whats the standard deviation that would go in the 5-day 99% VaR? The standard deviation to be used in the VaR formula is: Std=Sqrt(25*[5+2*(5-1)*0.2+2*(5-2)*0.2*0.2+2*(5-3)*0.2*0.2*0.2+2*(5-4)*0.2*0.2*0.2*0.2]) Std=Sqrt(171.88)=13.11...
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This note was uploaded on 10/16/2011 for the course FIN 353 taught by Professor Cobus during the Spring '08 term at S.F. State.
- Spring '08