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# Suppose you’ve estimated that the fifth-percentile value at risk of a portfolio is 230% Now you wish to estimate the portfolio’s first-percentile VaR he value below which lie 1% of the returns

1. Suppose you’ve estimated that the fifth-percentile value at risk of a portfolio is 230%. Now you wish to estimate the portfolio’s first-percentile VaR (the value below which lie 1% of the returns). Will the 1% VaR be greater or less than 230%? (LO 5-2)

2. To estimate the Sharpe ratio of a portfolio from a history of asset returns, we use the difference between the simple (arithmetic) average rate of return and the T-bill rate. Why not use the geometric average? (LO 5-4)

3. When estimating a Sharpe ratio, would it make sense to use the average excess real return that accounts for inflation? (LO 5-4)

4. You’ve just decided upon your capital allocation for the next year, when you realize that you’ve underestimated both the expected return and the standard deviation of your risky portfolio by 4%. Will you increase, decrease, or leave unchanged your allocation to risk-free T-bills? (LO 5-4)

Jun 17 2020 View more View Less