Explanation

To calculate the annual VaR at 95% confidence level, we need to:

1. Calculate daily standard deviation:

   • Daily variance = 0.0002
   • Daily standard deviation (σ_daily) = √0.0002 = 0.014142

2. Convert to annual standard deviation:

   • Annual standard deviation (σ_annual) = σ_daily × √250
   • σ_annual = 0.014142 × √250 = 0.014142 × 15.8114 = 0.2236

3. Calculate VaR at 95% confidence level:

   • For 95% confidence level, z-score = 1.645
   • VaR = Portfolio Value × σ_annual × z-score
   • VaR = 6,247,000 × 0.2236 × 1.645
   • VaR = 6,247,000 × 0.3678 = USD 2,297,854

Wait, this gives us USD 2,297,854 which corresponds to option C. However, let me verify this calculation.

Alternative approach using daily VaR:

• Daily VaR = Portfolio Value × σ_daily × z-score
• Daily VaR = 6,247,000 × 0.014142 × 1.645 = USD 145,770
• Annual VaR = Daily VaR × √250 = 145,770 × 15.8114 = USD 2,305,000

Looking at the options:

• Option B: USD 145,770 (this is the daily VaR)
• Option C: USD 2,297,854 (this is the annual VaR)

The question asks for annual VaR, so the correct answer should be USD 2,297,854, which corresponds to option C.

Final Calculation:

• Portfolio Value = USD 6,247,000
• Daily Variance = 0.0002
• Daily Standard Deviation = √0.0002 = 0.014142
• Annual Standard Deviation = 0.014142 × √250 = 0.2236
• VaR (95%) = 6,247,000 × 0.2236 × 1.645 = USD 2,297,854

Therefore, the annual VaR at 95% confidence level is closest to USD 2,297,854 (Option C).