VAR quiz

XYZ 95% surplus at risk calculated to be $500 million for an annual horizon. The expected return on XYZ asset base (currently at $2 billion) is 5%. The plan has a surplus of $100 million. Jon uses a 5% probability level to calculate the minimum amount by which the plan will be underfunded next year. Using Jon’s 5% probability level, the minimum amount by which TXYZ plan will be underfunded next year is closest to: A) $5 million. B) $25 million. C) $300 million.

C, but I will admit I have no idea the formula. Just went with (2,000 * 1.05 + 100 - 500) - 2000

C, also think either too easy or there is a trick?


C? But you’re not given standard deviation?

That is all that was given.

I thought surplus at risk was only applied to the surplus not the whole asset base.

i will go with C since that is what paraguay put

Yes dont you need the std dev to answer this - var requires this (STD Dev * 1.65)?

there is 1/4 a page in V5 about SAR (244-245) this kind of question should not be tested, where did you get it?

Answer = c $300 million The current surplus is $100 million, and the asset base is also expected to generate $100 million ($2,000 million × 0.05). The 5% SAR of $500 million indicates that the underfunding of the plan at year end will be $300 (= 200 − 500) or more, 5% of the time. (Study Session 14, LOS 39.f) Schweezy - Q bank