What does it mean if we are being told that the 5% VaR of a portfolio is -4.75%?

Question

Quizplus · Accepted Answer

The 5% VaR (Value at Risk) is a measure of the maximum loss that a portfolio is expected to incur over a given time period with a given level of confidence (in this case 95% confidence) under normal market conditions. A negative VaR means there is a high likelihood of a loss, but in this case, the magnitude of the loss is limited to 4.75%. Therefore, the correct statement is that there is only a 5% probability of a loss greater than 4.75% (Option C) and the maximum loss of the portfolio is 4.75% with probability 95% (Option D). Thus, the correct answer is E.

What Does It Mean If We Are Being Told That