Concept Checkers

1. Which of the following is the best synonym for diversified VAR?

A. Vector VAR.

B. Position VAR.

C. Portfolio VAR.

D. Incidental VAR.

2. When computing individual VAR, it is proper to:

I. use the absolute value of the portfolio weight.

II. use only positive weights.

III. use only negative weights.

3. A portfolio consists of two positions. The VAR of the two positions are $10 million and $20 million. If the returns of the two positions are not correlated, the VAR of the portfolio would be closest to:

B. $15.00 million

4. Which of the following is TRUE with respect to computing incremental VAR? Compared to using marginal VARs, computing with full revaluation is:

A. more costly, but less accurate.

B. less costly, but more accurate.

C. less costly, but also less accurate.

D. more costly, but also more accurate.

5. A portfolio has an equal amount invested in two positions, X and Y. The expected excess return of X is 9% and that of Y is 12%. Their marginal VARs are 0.06 and 0.075 respectively. To move toward the optimal portfolio, the manager will probably:

A. increase the allocation in Y and/or lower that in X.

B. increase the allocation in X and/or lower that in Y.

C. do nothing because the information is insufficient.

D. not change the portfolio because it is already optimal.

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