Which One of the Following Is the Best Interpretation of This

question 69

Multiple Choice

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.

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Definitions:

Event

An outcome or set of outcomes for which we want to know the probability.

Favorable Outcome

An outcome included in an event.

Cold Fusion

A hypothetical type of nuclear reaction that would occur at, or near, room temperature, compared to the high temperatures required for traditional nuclear fusion.

Probability

A measure of the likelihood that an event will occur, often expressed as a number between 0 and 1.