Which one of the following correctly states the VaR for a 3-year period with a 2.5 percent probability? A) Prob[R_p,T ≤ E(R_p) × 3 - 1.645 × σ_p √3] B) Prob[R_p,T ≤ E(R_p) × √3 - 1.645 × σ_p 3] C) Prob[R_p,T ≤ E(R_p) × √3 - 1.645 × σ_p √3] D) Prob[R_p,T ≤ E(R_p) × 3 - 1.960 × σ_p √3] E) Prob[R_p,T ≤ E(R_p) × √3 - 1.960 × σ_p 3]

Question

Quizplus · Accepted Answer

The formula for VaR with a given probability and time horizon is:
VaR = E - z * σ * √t
where E is the expected return, σ is the standard deviation, z is the z-score associated with the given probability, and t is the time horizon in years.
Substituting the values given in the question, we get:
VaR = E * 3 - 1.960 * σ * √3
which is equivalent to Option D.

Which One of the Following Correctly States the VaR for a 3-Year