Trailer Co. stock has an expected return of 12.2% and a standard deviation of 11.8%. What is the smallest expected loss over the next month given a probability of 5%?
A)4.59%
B)6.09%
C)7.27%
D)11.49%
E)13.77%

Question

Quizplus · Accepted Answer

Using the concept of Value at Risk (VaR) at the 5% level for a normal distribution, we calculate the smallest expected loss. VaR at the 5% level corresponds to 1.645 standard deviations below the mean. Thus, the calculation is: -1.645 * 11.8% + 12.2% = -4.59%.