US CMA Part 2 · Chapter 7 · Question 8 of 15
A treasury portfolio is worth $20,000,000. Its daily returns are normally distributed with a mean of zero and a standard deviation of 1.2%. Using a one-tailed z-value of 1.65 for 95% confidence, what is the one-day 95% value at risk (VaR)?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: C) $396,000
Explanation
VaR = z x standard deviation x portfolio value = 1.65 x 1.2% x $20,000,000 = $396,000. There is a 5% chance of losing more than $396,000 in one day. Using 2.33 gives 99% VaR ($559,200), and 1.96 is the two-tailed 95% value.
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