Chartered Investment Manager (CIM) Practice Exam · Question
A client is concerned about potential losses in their portfolio and asks for a measure that quantifies the maximum expected loss over a specific time horizon with a given confidence level. Which risk measure directly addresses this concern?
Value at Risk (VaR) specifically quantifies the maximum expected loss over a specific time horizon at a given confidence level, making it the most direct answer
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Question: A client is concerned about potential losses in their portfolio and asks for a measure that quantifies the maximum expected loss over a specific time horizon with a given confidence level. Which risk measure directly addresses this concern?
Answer options:
- Beta
- Standard Deviation ✅ Value at Risk (VaR)
- Tracking Error
Correct answer: Value at Risk (VaR)
Explanation: Value at Risk (VaR) specifically quantifies the maximum expected loss over a specific time horizon at a given confidence level, making it the most direct answer to the client's concern about maximum potential loss.
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