CMA Final · Strategic Performance Management and Business Valuation · Corporate Risk Management Performance
A firm's portfolio has a one-day 99% Value at Risk of ₹4 crore. Assuming returns are independent and identically distributed and the square-root-of-time rule applies, the 99% VaR for a 9-day horizon is:
The 9-day VaR is ₹12 crore, because VaR scales with the square root of time: ₹4 crore multiplied by the square root of 9, which is 3. Scaling linearly to ₹36 crore would wrongly ignore diversification across days.
- A₹36 crore
- B₹12 croreCorrect
- C₹1.33 crore
- D₹18 crore
Explanation
Multi-day VaR = 1-day VaR × √days = 4 × √9 = 4 × 3 = ₹12 crore. Multiplying by 9 (₹36 crore) wrongly scales linearly and ignores that volatility grows with the square root of time.
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