Question

# The probability density function (pdf) for daily profits at Rectangle Inc. can be described by the following

piecewise function,

p= 1/24 for−12≤π≤0

p= 1/20 for 0≤π≤+10

These above functions sit on a x and y axis, where x and y meet at 0, p= 1/24 starts to the left of the y axis at -12 and runs to 0 all at a height of 1/24 (a rectangle), and p=1/20 starts and 0 and runs to 10 at a height of 1/20 (also a rectangle, making one large shape of 2 connected rectangles.

a) What is the one-day 95% VaR (Value at Risk) for Rectangle Inc.?

b) What is the one-day 95% ES for Rectangle Inc.?

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