Question

95% VaR not only tells you the worst losses that might occur to a bank during...

95% VaR not only tells you the worst losses that might occur to a bank during 95% of the time, but also tells you how big the losses could be during the remaining 5% of the time.

True or False?

Homework Answers

Answer #1

False.

VaR tells you the worst losses that might occur during the 95% along with the amount or percentage of loss in the given time horizon. However, it is certain that if we are evaluating VaR with 95% of the confidence, there is 5% chances that the losses will be more than that is calculated in 95% VaR. However, it does not give any idea of amount of loss.

For eg ; A 95% VaR is confident 95% that the worst monthly loss will be of $100,000. There are still 5% chances that losses can exceed $100,000 but there is no prediction of definite number. So the statement is not true.

If you have any doubt ask me in the comment section.

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
1.The management of First American Bank was concerned about the potential loss that might occur in...
1.The management of First American Bank was concerned about the potential loss that might occur in the event of a physical catastrophe such as a power failure or a fire. The losses are due to interrupted service and customer relations. One project the bank is considering is the installation of an emergency power generator at its operations headquarters. The cost of the emergency generator is $800,000, and if it is installed, no losses from this type of incident will be...
As a portfolio manager for Bank of America Merrill Lynch, you are managing a portfolio of...
As a portfolio manager for Bank of America Merrill Lynch, you are managing a portfolio of $48.50 million. You would like to estimate how much your portfolio might be losing over the next 9 trading days. Suppose the portfolio has a daily volatility of 2.5%. a. What is 9 day volatility?  (sample answer: 15.50% or 0.1550) b. What is the VaR (in dollars) over a 9 day time period at a 95% confidence level?
Treat each situation separately; show all calculations. Critical value: 1.65(95%); 2.33(99%) (a) You are holding a...
Treat each situation separately; show all calculations. Critical value: 1.65(95%); 2.33(99%) (a) You are holding a stock whose current value is s 4, 000. Over the last year, histoncal data show that daily returns of this share have averaged 0.012 percent per day, and the daily standard deviation has been 0.06 percent. Assume that the daily retums follow a normal distribution. At a 99% level of confidence, how large a loss might occur on this stock luring the next 10...
As a portfolio manager for Bank of America Merrill Lynch, you are managing a portfolio of...
As a portfolio manager for Bank of America Merrill Lynch, you are managing a portfolio of $48.50 million. You would like to estimate how much your portfolio might be losing over the next 9 trading days. Suppose the portfolio has a daily volatility of 2.5%. a. What is 9 day volatility? (sample answer: 15.50% or 0.1550) b. What is the VaR (in dollars) over a 9 day time period at a 95% confidence level? (Sample answer: $2.5 million; or $2,500,000.0)
Although there is some truth in the following statements, which best describes accepting risk as part...
Although there is some truth in the following statements, which best describes accepting risk as part of a decision-making process, given the definition of risk we have used in this class? Taking a course of action when you are not sure about what will happen in the future. Taking a course of action even though you know that only bad things could possibly happen. Taking a course of action when you are uncertain about the future, but only good outcomes...
TRUE/FALSE Simply calculating the various ratios tells everything you need to know about a company. You...
TRUE/FALSE Simply calculating the various ratios tells everything you need to know about a company. You would expect a produce market to have a low inventory turnover ratio. The Acid Test Ratio uses only the most liquid current assets in its calculation. The Current Ratio uses only the most liquid current assets in its calculation. The Inventory Turnover Ratio indicates the number of times Accounts Receivable are turned into cash during the period. The Return on Sales Ratio indicates how...
1. This number tells you the amount of money the company spent to produce the goods...
1. This number tells you the amount of money the company spent to produce the goods it sold during the accounting period. Revenue or Sales Operating Expenses Cost of Sales Gross Profit 2. Only manufacturing or merchandising companies have cost of sales since they make or buy products to sell to others. True False 3. Sales or Revenue minus costs of sales is called “gross profit” or sometimes “gross margin. Operating Income Net Sales Net Income 4. These are expenses...
You are considered to be an expert in false memories, and a local district attorney has...
You are considered to be an expert in false memories, and a local district attorney has therefore requested your expertise on the following case: On Tuesday, March 6, 2007, a bank was robbed in Slidell, LA. It was just after opening time, 9:04 a.m., and there were barely any customers, when a car arrived and parked in the side parking lot of the bank. Two men came out of the car and walked to the entrance. Both wore dark clothing....
Please only answer if you are 100% sure and I need the answers now. QUESTION 16...
Please only answer if you are 100% sure and I need the answers now. QUESTION 16 Suppose that the current dollar/peso exchange rate is $.12/peso, but both the US and Mexican central banks believe that the exchange rate should be 9 pesos/$. If both nations decide to use sterilized market intervention to achieve the desired exchange rate, which of the following will occur? The Mexican central bank will sell dollars, buy pesos, and conduct an open market sale of Mexican...
The XYZ Pension Fund is resource-constrained and has only $8,000,000 available for co-investment in an infrastructure...
The XYZ Pension Fund is resource-constrained and has only $8,000,000 available for co-investment in an infrastructure asset, and must show its Board of Trustees that it has selected the most potentially profitable investments. It is being offered 6 alternatives, each of which has reached construction completion, and with 25 years’ concession period remaining. These are: Project type Financed by Gross Investment required Net Present Value $ Projected IRR % Single toll road Bank debt $1m 80,000 13.9 Large general Hospital...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT