Question 89

A financial institution uses value at risk (VaR) as a risk measurement tool for assessing the probability of losses. You must determine the VaR for a client's $500,000 portfolio based on monthly common stock index returns. Assume that the lowest 5% tail for a historical distribution of 10,000 monthly returns is -17.2% and that the average loss beyond the 5% threshold corresponds to a loss of 19.7%. What is the monthly VaR at the 95% confidence level for a portfolio of $500,000?