Negative VAR

The VAR cannot be negative (either in the exam or in real life).

Hi John, Sorry, I need to rephrase. VAR is positive but it is higher than the average. It was in an example in the BPP textbook whereby NPV for 4 years is $2mil and standard deviation for 1 year is $1mil. At 95% confidence level for the 4 years, it is 1.645 * $1mil * square root of 4 = $3.29m. Using $2mil to deduct $3.29m, I get -$1.29m. Does this mean that I am 95% confident that the return will be a loss of $1.29m and there is less than 5% chance that the loss will be greater than $1.29m?

It seems that the BPP textbook is a bit confused if you have cop[ied from there correctly. We use VaR on the annual net flow, not on the NPV. So if there were a return of $2m per year for 4 years, then the total average return would be $8M. There is a 5% chance therefore of the total return being less than 8 - 3.29 = $4.71M. Have you watched my free lectures on VaR?