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The bank has invested in a portfolio consisting of two instruments; $ 15 million investment...

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Finance

The bank has invested in a portfolio consisting of two instruments; $ 15 million investment in the S&P 500 index and $ 12 million investment in U.S. government bonds. The government bond is expected to yield 7% and the standard deviation of the yield is 5%. The return on the S&P 500 index is expected to be 15% with a standard deviation of 20%. The correlation between bond yields and S&P 500 index returns is 0.40. All figures are expressed in annual values a) Calculate the VaR of the portfolio for one year with a 5% probability. b) Using the information in the previous section, which is the one-day VaR.

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