Dec 2014 Q3 Value at risk

I do explain this in my free lectures!!! If the standard deviation for 1 year is S, then the standard deviation for n years is S x square root of n. So here, the SD for 1 year is 400,000. We want it for 5 years, so the SD for 5 years is 400,000 x (square root of 5). (Writing something to the power of 0.5 is another way of writing 'square root') The reason is that the 5 year variance is equal to 5 times the annual variance, and the variance is the std deviation squared. However, the reason itself is not relevant for the exam - all you need to remember is to multiply the annual SD by the square root of the number of years.