K
kylie jane
Member
Can someone help me out with the reasoning behind the solution:
Question: "Assuming a normal distribution, calcualte the VAR:
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 portfolio will fall by more than 10% over a year."
In the solution we have VAR = (0.06--0.1)*10m = 1.6m
I don't quite understand why... I get that if we ignore any return we have VAR_0.95 = 0.1*10m
I feel like I'm missing something really basic here! Any help would be great
Question: "Assuming a normal distribution, calcualte the VAR:
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 portfolio will fall by more than 10% over a year."
In the solution we have VAR = (0.06--0.1)*10m = 1.6m
I don't quite understand why... I get that if we ignore any return we have VAR_0.95 = 0.1*10m
I feel like I'm missing something really basic here! Any help would be great