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CMA Final · Strategic Financial Management · Risks in Financial Market

Returns on a stock have a standard deviation of 2% per day. Assuming normally distributed returns and 1.65 as the z-value for 95% one-tailed confidence, a position worth ₹5,00,00,000 has a one-day 95% Value at Risk of approximately:

The one-day 95% VaR is about ₹16,50,000. One day's standard deviation in rupees is 2% of ₹5 crore, which is ₹10 lakh, and multiplying by the 95% one-tailed z-value of 1.65 gives the potential loss not expected to be exceeded with 95% confidence.

  1. A₹16,50,000Correct
  2. B₹10,00,000
  3. C₹1,65,00,000
  4. D₹3,30,000

Explanation

VaR = 1.65 × 2% × ₹5,00,00,000 = 1.65 × ₹10,00,000 = ₹16,50,000. Option B omits the z-value and uses one standard deviation only. Option D wrongly applies 1.65 to 0.2%.

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