Which One of the Following Is the Best Interpretation of This

question 16

Multiple Choice

Which one of the following is the best interpretation of this VaR statistic: Prob (Rp $\le$ - .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:

Bayesian Statistic

A statistical method that applies probability to statistical problems, focusing on the degree of belief (or subjective probability) as the basis for making statistical inferences.

Correlation Coefficient

A statistical measure that calculates the strength of the relationship between the relative movements of two variables.

Causal Relationship

A connection between two variables where a change in one directly causes a change in the other.

Positive Correlations

A statistical relationship indicating that as one variable increases, the other variable tends to increase as well.