Calculating One-Year VaR at 95% Confidence

Value at Risk (VaR) is a widely used risk management tool that estimates the potential loss an investment portfolio could incur over a specified time period for a given confidence interval. A portfolio manager is analyzing a portfolio consisting of both stocks and bonds. The manager has determined that the expected return is 8% with a standard deviation of 10% over a one-year timeframe. To better understand the risk associated with this portfolio, the manager calculates the one-year VaR at a 95% confidence level, aiming to assess the worst-case loss over that period.