Suppose each of two independent projects has a probability of 0.01 (or 1%) of a loss of $15 million and a probability of 0.99 (or 99%) of a loss of $2 million during a one-year period. Suppose that the traders have put the projects in the same portfolio.
a. What is the 98.5% VaR for each project?
b. What is the 98.5% VaR for the portfolio?
c. What is the 98.5% expected shortfall for each project?
d. What is the 98.5% expected shortfall for the portfolio?