A portfolio has a 2.5 percent chance of losing 16 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 16 percent or more once in every how many years?
A)1.0
B)2.5
C)25
D)40
E)100

Question

Quizplus · Accepted Answer

The VaR indicates a 2.5% chance of a loss of 16% or more, which means such a loss is expected once in every 1/0.025 = 40 years.

A Portfolio Has a 2