A stock has a price of $42.63 and pays no dividend.The historical standard deviation of the stock is 18% and the expected return on the stock is 11%.At the 95% confidence level,what is the Tail VaR over the next 270 days?
A) $2.13
B) $6.56
C) $9.71
D) $40.50

Question

Quizplus · Accepted Answer

The formula for Tail VaR is:
TVaR = -[expected return - (z-score x standard deviation)] x initial investment
where z-score for 95% confidence level is 1.645 (from standard normal distribution table).
Thus, TVaR = -[0.11 - (1.645 x 0.18)] x $42.63 x √(270/365) = -$9.71, rounded to nearest cent. Therefore, the best choice is C.

A Stock Has a Price of $42