Answer: A minimum daily loss of $20 million is expected to occur once every 20 days

## 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)

Author: LeetQuiz Editorial Team