Mr. Y is a rational risk taker. He takes his position in derivative market of a single stock through margin trading for 4 days in a week. He does…

Mr. Y is a rational risk taker. He takes his position in derivative market of a single stock through margin trading for 4 days in a week. He does not take a position on Friday to avoid weekend effect and takes position only for four days in a week i.e. Monday to Thursday. He transfers the amount on Monday morning and withdraws the balance on Friday morning. He desires to take a maximum exposure in the derivative market where Value at Risk (VAR) should not exceed the balance lying in his bank account. The position by his manager, as per standing instructions, is taken on the free balance lying in the bank account in the morning on each Monday. On Monday morning (before opening of the capital market) he has transferred an amount of 11 Crore to his bank account. A fixed deposit also matured on this Monday. The maturity amount of 63,42,560 was also credited to his account by the bank in the morning of the Monday. However, Mr. Y received the intimation of the same in the evening. The bank needs a minimum balance of 1,000 all the time. The other information with respect to stocks A and B, which are under consideration for this week, is as under: A B Return (%) Probability Return (%) Probability 6 0.10 4 0.10 7 0.25 6 0.20 8 0.30 8 0.40 9 0.25 10 0.20 10 0.10 12 0.10 From the information given above, choose the correct answer to the following questions: