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CMA Final · Strategic Financial Management · Risks in Financial Market

A portfolio manager at a Mumbai fund house holds a portfolio worth Rs 50 crore. The daily standard deviation of returns is 1.5%. Assuming normally distributed returns, what is the one-day 95% VaR (use z = 1.65)?

The one-day 95% VaR is Rs 1.2375 crore. It equals the z-value 1.65 multiplied by the daily standard deviation of 1.5% and the portfolio value of Rs 50 crore, giving the loss that should not be exceeded with 95% confidence.

  1. ARs 0.825 crore
  2. BRs 1.2375 croreCorrect
  3. CRs 2.475 crore
  4. DRs 0.75 crore

Explanation

VaR = z x sigma x value = 1.65 x 0.015 x 50 crore = 1.2375 crore. Rs 0.825 crore uses 1.65 x 0.01, a wrong sigma. Rs 0.75 crore uses sigma x value without z.

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