Explanation:
The VaR of this investment can be interpreted as either (1) there is a 95% probability that the portfolio will lose no more than $18 million on a given day or (2) there is a 5% probability that the portfolio will lose more than $18 million on a given day.
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Question 71
A firm has determined that the value at risk (VaR) of its investment portfolio is $18 million for one day at a 95% confidence level. Which of the following statements regarding this VaR measure is correct?
A
There is a 95% probability that the portfolio will lose $18 million on a given day.
B
There is a 95% probability that the portfolio will lose no more than $18 million on a given day.
C
There is a 5% probability that the portfolio will lose $18 million on a given day.
D
There is a 5% probability that the portfolio will lose no more than $18 million on a given day.
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