We are asked to find the VaR for two investments at the 90% level and 95% level. At the 95% level VaR1=0 (for investment op 1) VaR2=50.2 At the 90% level VaR1=0 VaR2=47.9 So if we are only using VaR as a measure of riskiness investment 1 would be the investment we choose under both levels. However in the solution they state "Value at risk is highly sensitive to the confidence level chosen with 90% level suggesting investor 2 is riskier than investor 1 and 95% level vice versa". (i.e at 90% we should choose investment 1 and at 95% level we should choose investment 2... which doesn't make sense?!) Can someone please explain where I have gone wrong in my reasoning?! Thanks!
You're right. The above (which comes from the Examiners' Report) doesn't make sense. Our Revision Notes Booklets give the correct answer. As an aside, it would help us to answer questions about "solutions" if it were made clear whether these solutions come from ASET, Revision Note Booklets, Examiners' Report, a friend, etc. Thanks
