RSK4805
ASSIGNMENT 1 SEMESTER 2 2024
UNIQUE NO.
DUE DATE: 15 AUGUST 2024
, RSK4805
Assignment 3 2024
Unique number:
Due date: 15 August 2024
Market Risk Management
PREVIEW
Question 1.1: Equity Requirement Calculation (2 marks)
The profit next year is normally distributed with a mean of 0.8% and a standard
deviation of 2%. To determine how much equity (as a percentage of assets) is needed
to be 99% sure that the equity remains positive, we need to find the z-score for 99%
confidence and apply it to the profit distribution.
1. Given Data:
o Mean (μ) = 0.8%
o Standard Deviation (σ) = 2%
o Confidence Level = 99%
2. Find the z-score for 99% confidence:
o The z-score corresponding to 99% confidence is approximately 2.33.
3. Calculate the required equity:
X=μ−(z×σ)
X=0.8%−4.66%=−3.86%
X=0.8%−4.66%=−3.86%
UNISA@2024
, Question 1.1: Equity Requirement Calculation (2 marks)
The profit next year is normally distributed with a mean of 0.8% and a standard
deviation of 2%. To determine how much equity (as a percentage of assets) is needed
to be 99% sure that the equity remains positive, we need to find the z-score for 99%
confidence and apply it to the profit distribution.
4. Given Data:
o Mean (μ) = 0.8%
o Standard Deviation (σ) = 2%
o Confidence Level = 99%
5. Find the z-score for 99% confidence:
o The z-score corresponding to 99% confidence is approximately 2.33.
6. Calculate the required equity:
X=μ−(z×σ)
X=0.8%−4.66%=−3.86%
X=0.8%−4.66%=−3.86%
To have positive equity, the company needs to cover this shortfall, so the
required equity should be at least 3.86% of assets.
Question 1.2: Variance and Standard Deviation of Expected Return (3 marks)
Given the states of the economy with their respective probabilities and returns:
1. Calculate the Expected Return (E[R]):
E[R]=(0.30×13%)+(0.35×8%)+(0.15×2%)+(0.20×4%)
E[R]=3.9%+2.8%+0.3%+0.8%=7.8%
2. Calculate the Variance (Var[R]):
ASSIGNMENT 1 SEMESTER 2 2024
UNIQUE NO.
DUE DATE: 15 AUGUST 2024
, RSK4805
Assignment 3 2024
Unique number:
Due date: 15 August 2024
Market Risk Management
PREVIEW
Question 1.1: Equity Requirement Calculation (2 marks)
The profit next year is normally distributed with a mean of 0.8% and a standard
deviation of 2%. To determine how much equity (as a percentage of assets) is needed
to be 99% sure that the equity remains positive, we need to find the z-score for 99%
confidence and apply it to the profit distribution.
1. Given Data:
o Mean (μ) = 0.8%
o Standard Deviation (σ) = 2%
o Confidence Level = 99%
2. Find the z-score for 99% confidence:
o The z-score corresponding to 99% confidence is approximately 2.33.
3. Calculate the required equity:
X=μ−(z×σ)
X=0.8%−4.66%=−3.86%
X=0.8%−4.66%=−3.86%
UNISA@2024
, Question 1.1: Equity Requirement Calculation (2 marks)
The profit next year is normally distributed with a mean of 0.8% and a standard
deviation of 2%. To determine how much equity (as a percentage of assets) is needed
to be 99% sure that the equity remains positive, we need to find the z-score for 99%
confidence and apply it to the profit distribution.
4. Given Data:
o Mean (μ) = 0.8%
o Standard Deviation (σ) = 2%
o Confidence Level = 99%
5. Find the z-score for 99% confidence:
o The z-score corresponding to 99% confidence is approximately 2.33.
6. Calculate the required equity:
X=μ−(z×σ)
X=0.8%−4.66%=−3.86%
X=0.8%−4.66%=−3.86%
To have positive equity, the company needs to cover this shortfall, so the
required equity should be at least 3.86% of assets.
Question 1.2: Variance and Standard Deviation of Expected Return (3 marks)
Given the states of the economy with their respective probabilities and returns:
1. Calculate the Expected Return (E[R]):
E[R]=(0.30×13%)+(0.35×8%)+(0.15×2%)+(0.20×4%)
E[R]=3.9%+2.8%+0.3%+0.8%=7.8%
2. Calculate the Variance (Var[R]):
