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. 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.

Question

Quizplus · Accepted Answer

When the correlation is 1.0, the DEARs are perfectly correlated, so the total DEAR is the sum of the individual DEARs: -$150,000 + (-$250,000) = -$400,000.

Sumitomo Bank's Risk Manager Has Estimated That the DEARs of Two