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A risk manager uses the square root rule to scale a 1-day VaR of $1 million to a 10-day VaR of $3.16 million. What assumption is this approach making?

Returns are serially correlated Returns are independently and identically distributed (i.i.d.) Volatility increases with the square root of time Returns follow a fat-tailed distribution

Correct Answer:

Returns are independently and identically distributed (i.i.d.)

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