Portfolio A has total assets of $14 million and an expected return of 12.50 percent. Historical VAR of the portfolio at 5 percent probability level is $2,400,000. What is the portfolio’s standard deviation?
A. 12.50%.
B. 14.65%.
C. 17.97%.
D. 15.75%.
Answer:C
VAR = Portfolio Value [E(R)-zσ]
-2,400,000 = 14,000,000[0.125 – (1.65)(X)]
-2,400,000 = 1,750,000 – 23,100,000(X)
X = 17.97%.
Note that VAR value is always negative.