Problem:
Sumitomo Bank's risk manager has estimated that the DEARs of two of its major assets in its trading portfolio, foreign exchange and bonds, are -$150,000 and -$250,000, respectively.
1. What is the total DEAR of Sumitomo's trading portfolio if the correlations among assets are ignored?
a. -$100,000.
b. -$291,548.
c. -$350,000.
d. -$380,789.
e. -$400,000.
2. What is the total DEAR of Sumitomo's trading portfolio if the correlation among assets is assumed to be 1.0?
a. -$100,000.
b. -$291,548.
c. -$350,000.
d. -$380,789.
e. -$400,000.
3. What is the total DEAR of Sumitomo's trading portfolio if the correlation among assets is assumed to be 0.80?
a. -$100,000.
b. -$291,548.
c. -$350,000.
d. -$380,789.
e. -$400,000.
Summary
These short questions is from Finance and it is about computation DEARs of bank's trading portfolio which includes correlation.