Which one of the following is the primary purpose of the Value-at-Risk computation?
A) determine the 99 percent probability range given an abnormal distribution
B) evaluate the risk-return tradeoff for a given mix of securities
C) evaluate the probability of a significant loss
D) determine the portfolio that maximizes the risk premium per unit of total risk
E) determine the portfolio that maximizes the excess return per unit of systematic risk

Question

Quizplus · Accepted Answer

The primary purpose of the Value-at-Risk (VaR) computation is to evaluate the probability of a significant loss. VaR is a statistical measure that calculates the maximum expected loss that an investment portfolio may experience over a given time period with a certain level of probability. It helps investors to determine the potential downside risk of their investment and to manage their risk exposure accordingly. Option A is incorrect because VaR assumes a normal distribution of returns. Option B is incorrect because the risk-return tradeoff is evaluated through other measures such as the Sharpe ratio. Option D and E are incorrect because VaR does not address the risk premium or systematic risk.

Which One of the Following Is the Primary Purpose of the Value-At-Risk