Market Risk Queries

[Apara]

Hi,

Can someone help me in understanding the below Questions:

Assume a two-bond portfolio where the probability of bond default is 2% for each and independent (i.i.d). The face value of each bond is $100 and recovery is zero. What is the 95% expected shortfall?

1. $0
2. $10
3. $80
4. $100

Assume that an operational process has a 5% probability of creating a material loss and, otherwise, no material loss is experienced (i.e., Bernoulli). If the material loss occurs, the severity is normally distributed with a mean of $4 million and standard deviation of $2 million. What is the 95% expected shortfall?

$0.71 million
$3.29 million
$4.00 million
$7.29 million

Thanks in advance.

Cheers

Aparajita

 

[David Harper CFA FRM]

@Apara where did you get these? (if you are a paid member, the link should be in the document) the source is here at https://forum.bionicturtle.com/threads/l2-t5-70-expected-shortfall-dowd.3651/#post-9767 with lots of discussion