(a) Find the value at risk (VaR) for an investment of +100,000 at 2%. (That is, find out how low the value of this investment could be if we rule out the worst 2% of outcomes.) The investment is...

(a) Find the value at risk (VaR) for an investment of +100,000 at 2%. (That is, find out how low the value of this investment could be if we rule out the worst 2% of outcomes.) The investment is expected to grow during the year by 8% with SD 20%. Assume a normal model for the change in value.

(b) To reduce the VaR to
20,000, how much more expected growth would be necessary? Assume that the SD of the growth remains 20%.

(c) If the VaR of an investment is
20,000 for a oneyear holding period, does that mean that the VaR for a two-year holding period is +40,000?