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11) If an investor owns Apple stock, what happens to the Value at Risk of this stock if its volatility increases?
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Answer #1

Value at Risk (VaR) measure the risk of losing money in investments. It tells how much can be expected to lose in a particular time frame from the investment, gievn normal market conditions. For example, if a portfolio of stocks has a one day 2% VaR of $30,000, then it means that there is a 2% probability that the portfolio will lose more than $30,000 in a day.

Volatility is a measure of risk which tells about the fluctuations in the prices of the stock. It is most often measured by standard deviation.

Value at risk is directly proportional to the volatility. As volatility rises, the value at risk would also increase.

Thus, the Value at Risk of the stock will increase as volatility rises.

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