Assume the dollar market value of an FI's position is $200 000 with a modified duration of 4 years. The potential adverse move in the yield is 16.5 basis points. What is the VAR of the position if the FI is required to hold the position for 6 days (round to two decimals)?

Question

Quizplus · Accepted Answer

VAR = Market value x modified duration x potential adverse move 
VAR = $200,000 x 4 x 16.5 basis points 
VAR = $1320

Adjusted for the holding period of 6 days:

VAR = $1320 x sqrt(6/365) 
VAR = $32.33 (rounded to two decimals)

Therefore, the best choice is B, which matches the calculated VAR.

Assume the Dollar Market Value of an FI's Position Is