If the one-day value at risk (VaR) of a portfolio is $50,000 at a 95% probability level, this means that we should expect that in one day out of:
A. 20 days, the portfolio will decline by $50,000 or less.
B. 95 days, the portfolio will lose $50,000.
C. 20 days, the portfolio will decline by $50,000 or more.
D. 95 days, the portfolio will increase by $50,000 or more.
Answer:C
A 95% one-day portfolio value at risk (VaR) of $50,000 means that in 5 out of 100 (or one out of 20) days, the value of the portfolio will experience a loss of $50,000 or more.