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Will owns $400,000 of shares in Company X.
Company X has a daily volatility of 1% of its share price.
Calculate the 28 day value at risk that shows the most Will can expect to lose during a 28 day period.
(Will wishes to be 90% certain that the actual loss in any month will be less than your predicted figure).
Give your answer to the nearest $000.
Suggested Answer: A
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28 comments · newest first
DO
Donte
7 months ago
Yeah, using the formula for VaR, it seems right. Good luck everyone!
MA
Margarita
7 months ago
I feel like the answer is around $27,000. It fits the 90% confidence level.
RE
Reita
7 months ago
Agreed! 1% daily means we need to calculate for 28 days.
AI
Aileen
8 months ago
This question is tricky! I think the volatility plays a big role.
MA
Malissa
8 months ago
Totally agree, $27,000 sounds reasonable for a 90% confidence level!
FE
Felicidad
8 months ago
Wait, only $27,000? That seems way too low for that amount of shares!
DE
Dean
9 months ago
I think it should be less than that, maybe around $27,000?
AL
Alyssa
9 months ago
So for 28 days, that's about $56,000 max loss, right?
KA
Karol
9 months ago
The daily loss at 1% volatility is $4,000.
CO
Corinne
9 months ago
Haha, I bet Will's gonna be sweating bullets over this one. 28 days of 1% volatility? Yikes!
HE
Herminia
9 months ago
Wait, is that $27 or $27,000? The question asks for the answer to the nearest $000.
HE
Herman
9 months ago
90% certainty, huh? I'd double-check my math on this one.
TR
Tracey
10 months ago
Hmm, I'd expect the 28-day VaR to be higher than that. Gotta account for that daily volatility.
TY
Ty
10 months ago
I feel like I might be mixing up the calculations. Should we also consider the initial investment amount when calculating the potential loss?
LY
Lynelle
10 months ago
I think we practiced a similar question where we had to adjust for the time period. Is it just the daily volatility multiplied by the square root of 28 days?
TE
Teri
10 months ago
$27,000 seems a bit low for a $400,000 investment with 1% daily volatility.
CA
Carri
11 months ago
I'm a bit unsure about the 90% confidence level. Does that mean we need to use a Z-score of 1.28 for our calculations?
FR
Francene
11 months ago
I remember we calculated Value at Risk using the formula involving volatility and the Z-score for confidence levels.
GL
Glynda
11 months ago
I think I've got this. The 90% VaR means I need to find the 10th percentile of the 28-day return distribution. With a 1% daily vol, that should give me a pretty good estimate of the maximum expected loss.
LE
Levi
12 months ago
Hmm, I'm a bit unsure about the scaling here. Do I just multiply the daily volatility by the square root of 28, or is there some other adjustment I need to make?
LA
Laticia
12 months ago
This seems straightforward enough. I'll use the square root of time rule to scale up the daily volatility to a 28-day period, and then find the 90% quantile to get the VaR.
PH
Phuong
12 months ago
Okay, I see the daily volatility is 1% of the share price. That's a good starting point. Now I just need to figure out how to convert that to a 28-day VaR.
LI
Lindy
1 year ago
Hmm, this looks like a value at risk calculation. I'll need to find the daily volatility and then scale it up to a 28-day period to get the 90% VaR.
TW
Twana
7 months ago
90% confidence means we use a multiplier.
SH
Shenika
7 months ago
So, for 28 days, we scale it up.
KR
Kris
10 months ago
Right, daily volatility is 1%.
RI
Rima
10 months ago
I think we need to calculate the daily loss first.
RO
Rodolfo
11 months ago
I believe the final figure will be around $27,000.