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Past FRM question: Binary option VAR

Dear David Harper, CFA, FRM, CIPM ShaktiRathore

I am totally bamboozled by this past FRM question(FRM 2006). I know you said looking beyond 2009 paper was counterproductive but nonetheless was interested to know if it should be of concern for the Level 1:cool:

Imagine a portfolio which holds two binary options, each with the same payoff and probability: USD -100 with a probability of 4% and USD 0 with a 96% probability. Assuming the underlying has uncorrelated returns, what is the VaR (95% confidence level, 1 day)?
A.The VaR is zero
B.The VaR is USD 100
C.The VaR is USD 200
D.None of the above

Answer is B (no idea how :mad:)