Which one of the following is the best interpretation of this VaR statistic: Prob (R_p ≤ - 0.15)= 37%? A) If your portfolio declines by 15 percent or more, that decline is expected to be followed by a 37 percent increase in value. B) Your portfolio is expected to lose at least 15 percent, but not more than 37 percent in any given year. C) There is a 37 percent chance that your portfolio will decline in value by at least 15 percent over the next year. D) Sometime in the future, your portfolio is expected to lose 15 percent or more in a single year, but have an overall average rate of return of 37 percent. E) There is a 37 percent chance that your portfolio will lose at least 15 percent of its value over the next 10 years.

Question

Quizplus · Accepted Answer

The VaR statistic indicates the probability of a decline in the value of the portfolio. The statement "Prob (R_p ≤ - 0.15)= 37%" means that there is a 37 percent chance that the portfolio will decline in value by at least 15 percent over the next year. Hence, choice C is the correct interpretation. Choices A, B, D, and E are incorrect because they do not reflect the actual meaning of the given VaR statistic.

Which One of the Following Is the Best Interpretation of This