Explanation

Option C is correct because a 5% daily VaR means that losses exceeding $20 million are expected to occur with 5% probability, which translates to approximately once every 20 trading days (since 1/0.05 = 20).

Why the other options are incorrect:

• Option A: The expected daily loss cannot be determined from VaR alone. VaR measures potential losses at a specific confidence level, not the average or expected loss.
• Option B: This is incorrect because VaR represents the minimum loss that will occur with 5% probability, not the probability of losing exactly $20 million. The correct interpretation is that there's a 5% chance of losing at least $20 million.

Key VaR interpretation:

• 5% daily VaR = 95% confidence level
• Losses exceeding the VaR amount occur with 5% probability
• Over 100 days, we expect about 5 days where losses exceed $20 million
• This translates to approximately once every 20 days (100/5 = 20)