ssignment Check my work Problem 13-8 Value-at-Risk (VaR) Statistic (LO4, CFA6) W

Question

ssignment Check my work Problem 13-8 Value-at-Risk (VaR) Statistic (LO4, CFA6) Woodpecker, Inc., stock has an annual return mean and standard deviation of 12.4 percent and 43 percent, respectively. What is the smallest expected loss in the coming month with a probability of 2.5 percent? (A negative value should be indicated by a minus sign. Do not round intermediate calculations. Round the z-score value to 3 decimal places when calculating your answer. Enter your answer as a percent rounded to 2 decimal places.) Smallest expected loss

Explanation / Answer

Probability = 2.5%

So confidence interval = 1 – (2 × 2.5%)

                                     = 95%

With 95% confidence interval smallest possible loss is calculated below:

Z value at 95% confidence interval is 1.96.

Expected return = 12.40% – (1.96 × 43%)

                           = 12.40% – 82.48%

                          = –71.88%

Hence With 95% confidence interval smallest possible loss is –71.88%.

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