LOS g: Discuss the advantages and limitations of VAR and its extensions, including cash flow at risk, earnings at risk, and tail value at risk.
Q1. Value at risk (VAR) is attractive because it:
A) all of these choices are correct.
B) has a well-defined method for calculation.
C) is a single and easily understood measure.
Q2. Which of the following is NOT a practical benefit of the value at risk framework?
A) Comparability across asset classes.
B) Identification of risk factors.
C) Hedging.
Q3. As a risk measurement, value at risk may be superior to standard deviation because:
A) the statistical properties of VAR are more widely understood.
B) VAR may capture market participant's attitudes towards risk more completely.
C) most market participants calculate VAR in the same manner.
Q4. With respect to value at risk (VAR), regulatory agencies:
A) have mandatory requirements in all financial industries.
B) in some industries require its computation and reporting.
C) are studying it, but none have adopted its use.
Q5. Which of the following is NOT an appropriate application of VAR for portfolio managers?
A) Peer group risk evaluation.
B) Setting portfolio risk limits.
C) Identification of key portfolio risks.
Q6. Regarding the practical application of value at risk (VAR) for portfolio managers, which of the following statements is FALSE? VAR can:
A) be used to set risk limits on an absolute level.
B) not be used to set risk limits relative to a benchmark.
C) be used to identify the macroeconomic factors that have the greatest impact on overall portfolio performance.
Q7. Which of the following statements describes the most unique and practical application of value at risk (VAR) for comparing risky assets? VAR can be used to compare risk:
A) across bond market sectors.
B) across asset classes such as bonds and stocks.
C) between different style equity portfolios.
Q8. An investor hires a portfolio manager and stipulates a maximum value at risk for the portfolio. This is an example of the use of the value at risk framework to:
A) set risk limits.
B) measure performance.
C) build portfolios.
Q9. The accuracy of a value at risk (VAR) measure:
A) is included in the statistic.
B) is one minus the probability level.
C) can only be ascertained after the fact. |