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1. An investor can choose between two investments, X and Y.
Investment X: the rate of return is distributed uniformly between -5%
and 25%.
Investment Y: the rate of return is distributed normally with mean
10% and variance 75%%.
(a) Show that the rate of return on X has the same mean and variance
as the rate of return on Y.
(b) The investor can invest his entire wealth of £1 million in X or Y.
Calculate the 95% value at risk for these two investments.
(c) Comment on your results from parts (a) and (b).
Sagot :
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