A portfolio manager has estimated the daily Value at Risk (VaR) for a client's equity portfolio at $10,000 with a 99% confidence level over one day. What does this mean?

Question: A portfolio manager has estimated the daily Value at Risk (VaR) for a client's equity portfolio at $10,000 with a 99% confidence level over one day. What does this mean?

Answer options: ✅ There is a 1% chance the portfolio could lose $10,000 or more over the next day.

• There is a 99% chance the portfolio will gain $10,000 or more over the next day.
• The portfolio is expected to lose exactly $10,000 in 1 out of 100 trading days.
• The maximum potential loss for the portfolio in a single day is $10,000.

Correct answer: There is a 1% chance the portfolio could lose $10,000 or more over the next day.

Explanation: VaR at a 99% confidence level of $10,000 means there is a 1% probability (100% - 99%) that the portfolio will experience a loss equal to or greater than $10,000 over the specified time horizon (one day).