PM - Market Risk confusion

[jackpham314]

1. Which of the following statements regarding the VaR of Fund X is correct (given the info that 1-day 95% VaR is 6.5 mil)?

A. The expected maximum loss for the portfolio is $6.5 mil.

B. 5% of the time, the portfolio can be expected to experience a loss of at least 6.5 mil.

C. 95% of the time, the portfolio can be expected to experience a one-day loss of no more than 6.5 mil.

B is correct. It seems to me the statement does not specify the frequency of the loss, so someone may argue that the 6.5 mil figure is too small if examined on a monthly, quarterly, or yearly basis. I do concede that A and C are wrong tho.

[fino_abama]

@jackpham314

1. Which of the following statements regarding the VaR of Fund X is correct (given the info that 1-day 95% VaR is 6.5 mil)?

A. The expected maximum loss for the portfolio is $6.5 mil.

B. 5% of the time, the portfolio can be expected to experience a loss of at least 6.5 mil.

C. 95% of the time, the portfolio can be expected to experience a one-day loss of no more than 6.5 mil.

B is correct. It seems to me the statement does not specify the frequency of the loss, so someone may argue that the 6.5 mil figure is too small if examined on a monthly, quarterly, or yearly basis. I do concede that A and C are wrong tho.

Where is this question sourced from?

The option B is written poorly, should have mentioned the frequency “one day”.

[jackpham314]

It’s from the 2020 Curriculum EOCs actually.

[fino_abama]

@jackpham314

It’s from the 2020 Curriculum EOCs actually.

Alright. I saw it. They may be implying “5% of the time” as “5% based on a 1-day period”, a bit too general in description.

[jackpham314]

Hope actual exam questions are not written this way. It is much easier for me to see that B offers incomplete information than figuring out C is incorrect …