Value at risk(VaR) is a measure of the risk of loss for investments that is typically used by firms and regulators in the financial industry to gauge the amount of money needed to cover possible losses.

A Portfolio Manager manages a portfolio of stocks and bonds with a total value of $19.55 million. The Portfolio Manger assumes the random fluctuations in annual returns follow a normal distribution with mean 7% and standard deviation of 11%. Under the current guidelines, the Portfolio Manger has to set the maximum loss so that no more than 5 percent of the portfolio value can be lost in any particular year. The maximum loss the Portfolio Manger is allowed to have is closest to?

$200,000

$2.18 million

$1.2 million

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