Baran

 

28、If the expected change in a fixed income portfolio is $520,000 and the standard deviation of the estimated change in the portfolio is $2,275,500, the 95 percent value-at-risk (VAR) for this portfolio is closest to:

A) $855,400.00.

B) $3,743,197.50.

C) $3,223,197.50.

D) $4,598,597.50.

Baran

 

The correct answer is C

VAR for this portfolio would be –[$520,000 – 1.645($2,275,500)] = $3,223,197.50.

Baran

 

29、A hedge fund portfolio has an expected return of 0.1 percent per day and a 5 percent probability 1-day value at risk (VAR) of $909. Which of the following statement is the best descriptor of this information?

A) The maximum daily loss on the portfolio is $909.

B) The portfolio will earn more than $909 only 5% of the time.

C) The minimum daily loss on the portfolio is $909.

D) The minimum loss for the worst 5% of the days is $909.

Baran

 

The correct answer is C

 

By definition, VAR is the minimum loss for the worst 5% of the days or the maximum 1-day loss 95% of days. A minimum or maximum daily loss on the portfolio of $909 does not incorporate the alpha (probability). Alternatively, VAR can be stated in terms of confidence, e.g.

Baran

 

30、The price value of a basis point (PVBP) of a bond portfolio is $45,000. Expected changes in interest rates over the next year are summarized below:

Change in Interest rates	robability
>+1.50%	1%
+1.00-1.49%	29%
0.00-0.99%	20%
-0.99-0.00%	45%
<-1.00%	5%

What is the value at risk (VAR) for the bond portfolio at a 99 percent confidence level?

A) $2,250,000.

B) $6,750,000.

C) $4,500,000.

D) $7,850,500.

Baran

 

The correct answer is B

 

At 1% probability level change in interest rates is 1.50% or higher.
Change in Portfolio value for a 150 bps change in rates = 150*45000 = 6,750,000
VAR = 6,750,000.

Baran

 

31、The price value of a basis point (PVBP) of a bond portfolio is $45,000. Expected changes in interest rates over the next year are summarized below:

Change in Interest rates	robability
>+1.50%	1%
+1.00-1.49%	29%
0.00-0.99%	20%
-0.99-0.00%	45%
<-1.00%	5%

What is the value at risk (VAR) for the bond portfolio at a 99 percent confidence level?

A) $2,250,000.

B) $4,500,000.

C) $6,750,000.

D) $7,850,500.

Baran

 

The correct answer is C

 

At 1% probability level change in interest rates is 1.50% or higher.
Change in Portfolio value for a 150 bps change in rates = 150*45000 = 6,750,000
VAR = 6,750,000.

Baran

 

32、Which of the following statements about value at risk (VAR) is TRUE?

A) VAR increases with lower probability levels.

B) VAR decreases with longer holding periods.

C) VAR is not dependent on the choice of holding period.

D) VAR is independent of probability level.

Baran

 

The correct answer is A

VAR measures the amount of loss in the left tail of the distribution and increases with lower probability levels. VAR actually increases with increases in holding period.