Answer-first summary for fast verification
Answer: JPY6,775,050
The correct answer is D, JPY 6,775,050. When the real-estate asset is removed from the portfolio and the proceeds from its liquidation are not reinvested, the portfolio's Value-at-Risk (VaR) will decrease. The explanation for this reduction is based on the fact that the VaR of a portfolio is the sum of the individual VaRs of its components. If the real-estate asset is dropped, the portfolio will only contain the financial asset. The new portfolio VaR is calculated as the VaR of the financial asset alone, which is JPY 4,787,400. The initial portfolio VaR, before dropping the real-estate asset, was JPY 11,562,450. Therefore, the reduction in portfolio VaR is the initial VaR minus the new VaR of the financial asset alone, which equals JPY 6,775,050. This calculation illustrates the impact of asset diversification on portfolio risk, as removing an asset can lead to a change in the overall risk profile.
Author: LeetQuiz Editorial Team
Ultimate access to all questions.
In considering the potential impact on the portfolio's risk, determine how the Value at Risk (VaR) would be affected if the real estate investment were sold and the proceeds were not reinvested back into the portfolio. Specifically, analyze the reduction in the portfolio's overall VaR that would occur from the elimination of this asset.
A
JPY2,252,250
B
JPY 3,494,700
C
JPY 5,746,950
D
JPY6,775,050
No comments yet.