Which one of the following is the best interpretation of this VaR statistic: Prob (Rp $\le$ - .15) = 37%?
A) If your portfolio declines by 15 percent or more, that decline is expected to be followed by a 37 percent increase in value.
B) Your portfolio is expected to lose at least 15 percent, but not more than 37 percent in any given year.
C) There is a 37 percent chance that your portfolio will decline in value by at least 15 percent over the next year.
D) Sometime in the future, your portfolio is expected to lose 15 percent or more in a single year, but have an overall average rate of return of 37 percent.
E) There is a 37 percent chance that your portfolio will lose at least 15 percent of its value over the next 10 years.

Question

Quizplus · Accepted Answer

The given VaR statistic represents the probability that your portfolio will decline in value by at least 15 percent over the next year. The probability is 37%, meaning there is a moderate chance of such a decline occurring. Option A is incorrect as it suggests a guaranteed increase after a decline, which is not supported by the given statistic. Option B is incorrect because the range of possible losses is larger than 15-37%. Option D is incorrect as it assumes an average rate of return of 37%, which is not implied by the given statistic. Finally, option E is also incorrect as it extends the time period to 10 years, which is not mentioned in the statistic.

Which One of the Following Is the Best Interpretation of This