R
Rioch
Member
Q: Assuming a normal distribution, calculate the Vaule at Risk for each of the following situations: The 95% VaR for an investor with a 10m portfolio where the average annual return is 6% and there is a 5% chance that the value of the porfolio witll fall by more than 10% over a year. (Though not explicitly stated, it is assumed in the solution that they want the VaR over a year).
Their answer:
=(0.06-(-0.1))*10m = 1.6m
My issue: doesn't saying "there is a 5% chance that the value of the porfolio will fall by more than 10% over a year" include the six percent gain? Why should I factor this in at all?
(I just did 10%*10m=1m)
Thanks,
Their answer:
=(0.06-(-0.1))*10m = 1.6m
My issue: doesn't saying "there is a 5% chance that the value of the porfolio will fall by more than 10% over a year" include the six percent gain? Why should I factor this in at all?
(I just did 10%*10m=1m)
Thanks,