Exercise

Determine the value-at-risk of simple monthly returns

Consider again the Microsoft stock. Assume that the simple monthly return $R$ is normally distributed with a mean $0.04$ and a variance $(0.09)^{2}$. The initial wealth to be invested over the month is $100,000.

Determine the 1% and the 5% value-at-risk (VaR) over the month on the investment. That is, determine the loss in investment value that may occur over the next month with a 1% probability and with a 5% probability.

Instructions

100 XP

Assign to mu_R the mean of $R$.
Assign to sigma_R the standard deviation of $R$.
Assign to W0 the initial wealth.
Compute the 1% value-at-risk and print the result to the console.
Compute the 5% value-at-risk and print the result to the console.