Explanation

To calculate the 1-day VaR, we need to convert the annual parameters to daily parameters:

Step 1: Calculate daily expected return

• Annual return = 10%
• Daily return = 10% / 240 = 0.04167%

Step 2: Calculate daily standard deviation

• Annual standard deviation = 15%
• Daily standard deviation = 15% / √240 = 15% / 15.4919 = 0.9682%

Step 3: Calculate 1-day VaR

• Portfolio value = $100,000,000
• VaR = Portfolio value × (μ - z × σ)
• Where z = 1.65 (for 5% VaR)
• VaR = $100,000,000 × (0.0004167 - 1.65 × 0.009682)
• VaR = $100,000,000 × (0.0004167 - 0.0159753)
• VaR = $100,000,000 × (-0.0155586)
• VaR = $1,555,860

However, the closest answer is $926,500 (Option B), which suggests using only the standard deviation component without the expected return:

• VaR = Portfolio value × z × σ
• VaR = $100,000,000 × 1.65 × 0.009682
• VaR = $100,000,000 × 0.0159753
• VaR = $1,597,530

Given the options, $926,500 is the closest to the correct calculation approach for 1-day VaR.