A portfolio is valued at $1,000,000 and has a 1-day 95% VaR of $82,250. What is the VaR?

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Multiple Choice

A portfolio is valued at $1,000,000 and has a 1-day 95% VaR of $82,250. What is the VaR?

Explanation:
VaR at a 1-day horizon with 95% confidence is the loss amount you would expect not to be exceeded on 95% of days over the next day. Here, the portfolio is worth $1,000,000 and the 1-day 95% VaR is $82,250. So there is a 95% chance the loss over the next day will be at most $82,250 (about 8.225% of the portfolio value). The other numbers don’t match that threshold for this scenario.

VaR at a 1-day horizon with 95% confidence is the loss amount you would expect not to be exceeded on 95% of days over the next day. Here, the portfolio is worth $1,000,000 and the 1-day 95% VaR is $82,250. So there is a 95% chance the loss over the next day will be at most $82,250 (about 8.225% of the portfolio value). The other numbers don’t match that threshold for this scenario.

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