Correct Answer: C

Explanation: To calculate the 95.0% confident 1-year lognormal Liquidity-adjusted Value at Risk (LVaR), we must evaluate the lognormal VaR and the Cost of Liquidation.

1. Calculate the Cost of Liquidation (COL):

   • Mid-market price = ($19.00 + $21.00) / 2 = $20.00
   • Proportional bid-offer spread ($s$) = ($21.00 - $19.00) / $20.00 = 10.0%
   • \text{COL} = 0.5 \times V \times s = 0.5 \times \`1,000,000 \times 10.0\% = \$50`,000`$2`. Calculate Lognormal Value at Risk (VaR):
   • Using the property that geometric returns are normally distributed:
   • Worst-case geometric return at 95.0% = $\mu - Z \times \sigma$
   • Let's use $Z = 1.645$ (or roughly $1.65$): Worst-case return = `$14.0`% - 1.645 \times 26.0% = 14.0% - 42.77% = -28.77%$
   • Worst-case portfolio value = V_0 \times \exp(\text{Worst-case return}) = \`1,000,000 \times \exp(-0.2877) = \$749`,986$
   • \text{VaR (relative to initial value)} = \`1,000,000 - \749`,986 = \`250`,014$
   • (Note: Using Z=1.65 yields a VaR of roughly \`251`,000$)

2. Calculate LVaR:

   • \text{LVaR} = \text{Lognormal VaR} + \text{COL} = \`250,000 + \50`,000 = \`300`,000$

Therefore, the nearest value is $300,000.