Answer: USD 46,445

## Explanation To solve this problem, we need to find the 95% daily VaR for the fixed income portion of the portfolio. ### Step 1: Understand the given information - Portfolio value: USD 12,428,000 - Fixed income portion: 42% → USD 5,219,760 - Equity portion: 58% → USD 7,208,240 - 95% annual VaR (portfolio): USD 1,367,000 - 95% annual VaR (equity): USD 1,153,000 - Correlation between stocks and bonds: 0 - Trading days per year: 250 ### Step 2: Convert annual VaR to daily VaR Since VaR scales with the square root of time: **Daily VaR (portfolio)** = Annual VaR (portfolio) / √250 = 1,367,000 / √250 = 1,367,000 / 15.8114 ≈ USD 86,450 **Daily VaR (equity)** = Annual VaR (equity) / √250 = 1,153,000 / √250 = 1,153,000 / 15.8114 ≈ USD 72,920 ### Step 3: Use portfolio VaR formula with zero correlation When correlation = 0, the portfolio VaR formula simplifies to: VaR²(portfolio) = VaR²(equity) + VaR²(fixed income) Let VaR(fixed income) = x 86,450² = 72,920² + x² 7,473,602,500 = 5,318,126,400 + x² x² = 7,473,602,500 - 5,318,126,400 x² = 2,155,476,100 x = √2,155,476,100 ≈ USD 46,445 ### Step 4: Verify the result - Daily VaR (equity): USD 72,920 - Daily VaR (fixed income): USD 46,445 - Portfolio VaR: √(72,920² + 46,445²) = √(5,318,126,400 + 2,157,138,025) = √7,475,264,425 ≈ USD 86,450 ✓ Therefore, the 95% daily VaR for the fixed income portion is **USD 46,445**.

Author: LeetQuiz .