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What is the dear of the aggregate portfolio

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Problem a) David Small, risk manager for Choice Bank, is estimating the aggregate DEAR of the bank's portfolio of assets consisting of loans (L), foreign currencies (FX), and ordinary shares (EQ). The individual DEARs are $300 700, $274 000 and $126 700, respectively. If the correlation coefficients (ij) between L and FX, L and EQ, and FX and EQ are 0.2, 0.3 and -0.6, respectively, what is the DEAR of the aggregate portfolio?

Problem b) Explain why the DEAR of the aggregate portfolio is less than the sum of individual DEARs.

Reference no: EM132957359

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