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FDQ plc makes packets of crisps. The production line manager identified that the 99% Value at Risk of the daily manufacturing process is 36g. That is they are 99% certain that FDQ PLC will not waste more than 36g of the ingredients in a day.
The z value for the 99% level of confidence is 2.33
What is the standard deviation in the manufacturing process?Please not simply type out a full question and expect to be provided with a full answer. You must have an answer in the same book in which you found the question and so you should ask about whatever it is in the answer that you are not clear about and then I will explain.
Although this question is about the normal distribution, it has nothing at all to do with ‘value at risk’ and could not possibly be asked in Paper AFM. This is a basic Paper MA question!!
The standard deviation here is 36/2.33 =15.45 gms.
If you are unsure about using the normal distribution then do watch the free Paper MA lectures on this. To understand VaR then watch the Paper AFM lectures on VaR.
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