Could someone please help me with how the math is done here…I have issues understanding the explanation in CFA text. 2 questions: Question 1: Calculate the continously compounded return. In ($34.50/$30) = In(1.15)=0.139762. Page 402 CFAI text on quant. How does In(1.15) becomes 0.139762…I have forgotten my math here… Question 2; Question 10A on page 451… Assuming that the exchange rate is normally distributes, what are the possibilites that the exchange rate will be least 1, 2, or 3 standard deviations away from it’s mean? Please explain… Thank you.
Problem 1 is just a calculator function. 1.15 -> LN --> gives you the answer. It is the Natural logarithm of 1.15 Question 10A on page 451… Assuming that the exchange rate is normally distributes, what are the possibilites that the exchange rate will be least 1, 2, or 3 standard deviations away from it’s mean? +/- 1 std dev: 68% +/- 2 std dev: 95% +/- 3 std dev: 99% This is just the std. normal curve N(0,1) drawn out with the std deviations listed.
Thank you CP… I get the first question…thanks… The second question…is still a mystery. I know about the probabilities of these std deviation from the normal tables. But this is not the answer. Check the answer given in the CFA text - Page A-56 Q 10A. The question is asking for the probabilities that the exchange rate will be at least 1,2 or 3 std deviations away from the mean? It gives absolute probability of X and the average mean to be greater than or equal to 1 std deviation as 0.3174. I am wondering if I could get 1 -.68=.32…since it is both tails but then this reasoning won’t work for 3 std deviation which is given as .0026. I am missing sth here… thanks again!
cpk123 Wrote: ------------------------------------------------------- > > Question 10A on page 451… > > Assuming that the exchange rate is normally > distributes, what are the possibilites that the > exchange rate will be least 1, 2, or 3 standard > deviations away from it’s mean? > > +/- 1 std dev: 68% > +/- 2 std dev: 95% > +/- 3 std dev: 99% > > This is just the std. normal curve N(0,1) drawn > out with the std deviations listed. the problem is asking for the probability that the rate will be greater than 1, 2 or 3 std devs away from the mean so it would be: +/- 1 std dev: 1-68% = 32%, etc… 23adam: cpk123’s percentage’s were just truncated. his +/- 3 std dev is really 99.74% when you take it out a little further
Thank you both! F