You invest $100 each in two bonds.Each bond will pay you $110 at the end of the year with probability 0.98 and nothing with probability 0.02.The correlation between the bonds is zero.In this scenario,the 95%-VaR of your portfolio is

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The 95%-VaR (Value at Risk) represents the maximum loss with a 95% confidence level. Given the 0.02 probability of getting nothing from each bond, the chance of both bonds failing is 0.02 * 0.02 = 0.0004 (0.04%). Since the correlation between the bonds is zero, their outcomes are independent. The 95% confidence level means we are looking for scenarios that cover up to 95% of outcomes, leaving 5% in the tail. The scenario where both bonds fail is well outside the 95% confidence interval (it's in the worst 0.04% of outcomes), so the 95%-VaR is when one bond fails, which happens with a probability greater than 5% but less than 100%. Therefore, the maximum loss at the 95% confidence level is the loss of one bond, which is $100 (since you get nothing from one bond but still get the $110 from the other, resulting in a net loss of $100 from the initial $200 investment).

You Invest $100 Each in Two Bonds −20- 20−20 ) B)Zero

You Invest $100 Each in Two Bonds $- 20$ )
B)Zero