CA Final · Advanced Financial Management · Risk Management
Kaveri Pharma has a portfolio worth ₹50 crore with daily return standard deviation of 1.2%. Assuming normal returns, mean daily return of zero and a 95% confidence z-value of 1.65, the one-day 95% VaR is:
One-day 95% VaR is ₹0.99 crore. Daily standard deviation in rupees is 1.2% of ₹50 crore, which is ₹0.60 crore, and multiplying by the 95% z-value of 1.65 gives ₹0.99 crore as the loss not expected to be exceeded on 95% of days.
- A₹0.99 croreCorrect
- B₹0.60 crore
- C₹1.98 crore
- D₹0.495 crore
Explanation
Daily volatility in rupees = 50 × 1.2% = ₹0.60 crore. VaR = 1.65 × 0.60 = ₹0.99 crore. ₹0.60 crore ignores the z-value; ₹1.98 crore uses z = 3.3 by doubling; ₹0.495 crore halves the answer.
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