Which one of the following correctly states the VaR for a 3-year period with a 2.5 percent probability? A) Prob[R_p,T $\le$ E(R_p) * 3 - 1.645 * $ \sigma$_p $ \surd$3] B) Prob[R_p,T $\le$E(R_p) * $ \surd$3 - 1.645 * $\sigma$_p 3] C) Prob[R_p,T $\le$ E(R_p) * $ \surd$3 - 1.645 * $\sigma$_p $ \surd$3] D) Prob[R_p,T $\le$E(R_p) * 3 - 1.960 * $\sigma$_p $ \surd$3] E) Prob[R_p,T $\le$ E(R_p) * $ \surd$3 - 1.960 *$\sigma$_p 3]

Question

Quizplus · Accepted Answer

The correct formula for VaR with a 2.5 percent probability over a 3-year period is:
VaR = E(R) x [3 - (1.960 x SD)]
where E(R) is the expected return, SD is the standard deviation, and 1.960 corresponds to the z-score for a 2.5 percent probability (assuming a normal distribution). The formula in choice D correctly applies this formula.

Which One of the Following Correctly States the VaR for a 3-Year