CMA Final · Strategic Financial Management · Risks in Financial Market
A portfolio has a value of Rs 5,00,00,000 and daily standard deviation of returns of 1.2%. Assuming normally distributed returns, what is the 1-day 95% Value at Risk (z = 1.65)?
The 1-day 95% VaR is Rs 9,90,000. One standard deviation of loss is 1.2% of Rs 5 crore, or Rs 6,00,000, and multiplying by the 95% z-value of 1.65 gives Rs 9,90,000.
- ARs 6,00,000
- BRs 9,90,000Correct
- CRs 3,60,000
- DRs 18,00,000
Explanation
VaR = z x sigma x value = 1.65 x 1.2% x 5,00,00,000 = 1.65 x 6,00,000 = Rs 9,90,000. Rs 6,00,000 is just one standard deviation, omitting the z-factor.
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