Chapter 5, Problem 1PS

Summary Introduction

To determine:

The value at Risk of the portfolio at first percentile

Introduction:

Value at Risk of the portfolio measures the lowest risk of the portfolio. It helps to understand how much would the investor loses in a portfolio. This can be determined through probability of the investment for a particular period of time.

Answer to Problem 1PS

It can be concluded that if the 5th percentile of the Value at risk is $-30\text{\%}$ , this would mean that Value at risk at the first percentile would definitely be less. It would be less than $-30\text{\%}$ , therefore it could be $-\text{45\%}$ .

Explanation of Solution

5th Percentile of Value at risk (Value at risk) means that the return should happen less than 5% of the time or less. That means 1 percentile Value at risk would be a return that should happen less than 1% of the time.