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P3 Test (Test question No 03 of Chapter 4)

Forums › CIMA Forums › P3 Test (Test question No 03 of Chapter 4)

  • This topic has 1 reply, 2 voices, and was last updated 9 years ago by Ken Garrett.
Viewing 2 posts - 1 through 2 (of 2 total)
  • Author
    Posts
  • August 28, 2016 at 3:57 am #335655
    mena1023
    Member
    • Topics: 2
    • Replies: 4
    • ☆

    Dear Ken Garrett,

    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?

    Answer
    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 be 2.33 x 3 = 7.
    Therefore there is a 99% chance that the value of the portfolio will be at
    least $3m (= 10 – 7)

    The above answer $ 3m is given by you. But your test answer is $ 7.00 Which one is correct?

    B/regards,
    Phuong

    August 28, 2016 at 1:29 pm #335770
    Ken Garrett
    Keymaster
    • Topics: 10
    • Replies: 10606
    • ☆☆☆☆☆

    The VAR is what you risk losing. Here it is 7m. If you start with 10 and risk losing 7 you risk being left with only 3.

    (The sentence above should have said that there is only a 1% chance of the value falling by more,than 7m)

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  • The topic ‘P3 Test (Test question No 03 of Chapter 4)’ is closed to new replies.

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