A portfolio has a 4.0 percent chance of losing 15 percent or more according to the VaR when T = 1.This can be interpreted to mean that the portfolio is expected to have an annual loss of 15 percent or more once in every how many years?
A) 1.0
B) 2.0
C) 25
D) 50
E) 100

Question

Quizplus · Accepted Answer

To find the time horizon, we need to use the formula: 
Time horizon (in years) = 1 / Probability of the loss event happening
In this case, the probability is 4.0 percent or 0.04. So, 
Time horizon = 1 / 0.04 = 25 years 
Therefore, the portfolio is expected to have an annual loss of 15 percent or more once in every 25 years.

A Portfolio Has a 4