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Hi,
A question on the practice test is as follows:
A portfolio of shares has a mean value of $10m with a daily standard deviation of $1m.
To the 99% confidence level, what is the value at risk over 9 days?
Enter your answer in millions.I calculated the answer as follows:
2.326 x $1m = $2.326m,
$2.326m x sq root of 9 = $6.978mThe test marks this as incorrect though when i enter 6.978 as the answer.
I answered a similar question which I got right, so I am not convinced it is the format I have used i.e. typing in 6.978, which is wrong.Please can you explain what i may be doing wrong.
Thanks,
LouiseYour method looks fine. Perhaps the model answer has rounded 2.326 to 2.33.
Dear Sir,
Two questions on the practice test are as follows:
1. A portfolio of shares has a mean value of $10m with a daily standard deviation of $1m.
To the 95% confidence level, what is the value at risk over one day?
Enter your answer in millions
Answer is $ 1.65 ($ 10.00 – $ 8.35) – The answer is same and no issue.2. A portfolio of shares has a mean value of $10m with a daily standard deviation of $1m.
To the 99% confidence level, what is the value at risk over 9 days?
Enter your answer in millions
Answer is $ 3.00 ($ 10.00 – $ 7.00)
But correct answer as per your result is $ 7.00. This is value of share. Not value at risk.Same type of 2 question, but calculating answer in different way?
Please explain.
Thanks!Phuong
Dear Sir,
Please ignore above question from me and it should be revised as follows;1. A portfolio of shares has a mean value of $10m with a daily standard deviation of $1m.
To the 95% confidence level, what is the value at risk over one day?
Enter your answer in millions
VAR is $ 1.65 and Value of share is $ 8.352. A portfolio of shares has a mean value of $10m with a daily standard deviation of $1m.
To the 99% confidence level, what is the value at risk over 9 days?
Enter your answer in millions
VAR is 7.00 and Value of share is $ 3.00If we change above question into 1 day at 99% confidence level,
VAR is 2.33 and Value of share is $ 7.67
How could share value drop to $ 3.00 within 9 days at 99% confidence level as your question?
I guess, daily standard deviation should be 1% instead of $1m
Please explain.
Thanks!Phuong
I have no idea what you are asking about. You describe two different questions. I don’t know what you want me to explain. What is the value of the share you talk about eg $8.35?
Ok, I’ll make it easy. Please answer to below question.
A portfolio of shares has a mean value of $10m with a daily standard deviation of $1m.
To the 99% confidence level, what is the value at risk over 9 days?
Enter your answer in millions
Value at risk is 7m
It means 99% confidence level value of share portfolio is equal or more than $3m after 9 days?Please explain.
Thanks!Thank you for making it easy by precisely explaining what you want to know. We are not mind readers. In the future, if you want questions answered don’ be so arrogant.
Std deviation over 9 days is $1m x square root of 9 = $3m
The z value for the 1/49 split is 2.33
Therefore there is only a 1% chance that the value of the portfolio will fall by more than 2.33 x 3 = 7.
Therefore there is a 99% chance that the value of the portfolio will be at
least $3m (= 10 – 7)
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