Chartered Financial Analyst Level 1
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A bank calculates its value at risk (VaR) to be €5 million at a 5% confidence level for one day. The bank anticipates a minimum loss of €5 million once every:
A bank calculates its value at risk (VaR) to be €5 million at a 5% confidence level for one day. The bank anticipates a minimum loss of €5 million once every:
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Explanation:
The correct answer is C. With a 5% probability and a one-day measurement period, the bank's VaR implies an expected minimum loss of €5 million once every 20 business days. This interpretation aligns with the definition of VaR, where a 5% probability over one day translates to an occurrence of roughly once every 20 business days (assuming 250 to 260 business days in a year). Options A and B are incorrect as they do not match this calculation.