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Chapter 3 Quiz

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14 views2 pages

Chapter 3 Quiz

Uploaded by

gayusekar11
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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Question 1

If the daily volatility of stocks is 0.2%, what is its 10-day volatility?


The correct answer is: 0.63%

The 10-day volatility can be estimated using the square root of time rule, assuming no autocorrelation
between daily returns:
10-day volatility=Daily volatility×10\text{10-day volatility} = \text{Daily volatility} \times \sqrt{10}10-
day volatility=Daily volatility×10
Substituting the daily volatility:
10-day volatility=0.002×10\text{10-day volatility} = 0.002 \times \sqrt{10}10-day volatility=0.002×10
Calculating the square root of 10:
10≈3.1623\sqrt{10} \approx 3.162310≈3.1623
Now multiply the daily volatility by this factor:
10-day volatility≈0.002×3.1623\text{10-day volatility} \approx 0.002 \times 3.162310-
day volatility≈0.002×3.1623 10-day volatility≈0.0063246\text{10-day volatility} \approx 0.006324610-
day volatility≈0.0063246
Converting back to percentage:
10-day volatility≈0.63246%\text{10-day volatility} \approx 0.63246\%10-day volatility≈0.63246%

Question 2
According to Basel II data set for calculating VaR models must be updated at least once every
The correct answer is: Three month

Question 3
99% daily VaR for a bond portfolio is Rs. 1000. What is the level of confidence on this value?
The correct answer is: 1%

Question 4
Which one of the following is not informed in the VaR reporting
The correct answer is: Market volatility

Question 5
Increasing longer maturity bonds in a portfolio would have the following effect on modified duration
The correct answer is: Increase

Question 6
Question text

1 day VaR of a portfolio is Rs.500,000 with 95% confidence level. In a period of six months (125
working days) how many times the loss on the portfolio may exceed Rs.500,000 ?
The correct answer is: 6 days

1 day VaR (Value at Risk) = Rs. 500,000


Confidence level = 95%
The 1 day VaR with a 95% confidence level means there is a 5% chance (or 0.05 probability) that the loss
on the portfolio will exceed Rs. 500,000 on any given day.
To find out how many days the loss may exceed Rs. 500,000 over 125 working days:
Expected number of exceedances = Probability of exceedance per day × Total number of days
Probability of exceedance per day = 1 - Confidence level = 1 - 0.95 = 0.05
Expected number of exceedances = 0.05 × 125
Expected number of exceedances = 6.25
Rounding to the nearest whole number, the expected number of days the loss may exceed Rs. 500,000 is 6
days.

Question 7
Modified duration assumes that yield changes by
The correct answer is: 100 bps

Question 8
According to Basel II data requirements for VaR models the sample period of daily observations
should be at least
The correct answer is: 250 days

Question 9
Question text

Stress testing of a portfolio is required because the value of VaR is


The correct answer is: Based on historical data

Question 10
The focus of VaR is on
The correct answer is: Downside risk

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