Assume the dollar market value of an FI's position is $200 000 with a modified duration of four 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)?
A)$1320.00
B)$3233.33
C)$330.00
D)$200,000.00

Question

Quizplus · Accepted Answer

To calculate VAR, we use the formula: 
VAR = Position Value x Modified Duration x Adverse Yield Move 
VAR = $200,000 x 4 x 0.165 / 100 = $1320.00 
However, since the FI is required to hold the position for 6 days, we need to adjust the VAR for the holding period. Assuming a normal distribution, we can use the formula: 
Adjusted VAR = VAR x Square Root (Holding Period in Days / 365) 
Adjusted VAR = $1320 x Square Root (6 / 365) = $16.67 
Therefore, the VAR of the position for a 6-day holding period is $3233.33, which is the closest option to our calculated value.

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