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What is the estimated liquidity-adjusted var

Assignment:

You are a manager of a renowned hedge fund and are analyzing a 1,000 share position in an undervalued but illiquid stock BNA, which has a current stock price of USD 80 (expressed as the midpoint of the current bid-ask spread). Daily return for BNA has an estimated volatility of 1.54%. The average bid-ask spread is USD 0.10. Assuming returns of BNA are normally distributed, what is the estimated liquidity-adjusted daily 95% VaR, using the constant spread approach?

a. USD 1,389

b. USD 2,076

c. USD 3,324

d. USD 4,351

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Portfolio Management: What is the estimated liquidity-adjusted var

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