Which of the following is the interpretation of a VAR of $5 million for one year at 5 percent probability.
A)the probability is 5 percent that the firm will lose at least $5 million in one year
B)the probability is at least 5 percent that the firm will lose $5 million in one year
C)the probability is 5 percent that the firm will lose $5 million in one year
D)the probability is less than 5 percent that the firm will lose $5 million in one year
E)none of the above

Question

Quizplus · Accepted Answer

VAR (Value at Risk) represents the maximum loss that an investment or portfolio could face with a given level of probability over a specific time frame. Therefore, a VAR of $5 million for one year at 5 percent probability means that there is a 5 percent chance that the firm will lose at least $5 million in one year.

Which of the Following Is the Interpretation of a VAR