well, do you remember what the answer for this question? If i am correct there were 3% average return 260 trading days 0.7% dayly volatility need to find upper interval for return in one year?
Annualized Std Dev = SQRT(#days/year)*DailyStdDev
Agree, although i did not arrived in answer which fit A, B, C well I supposed it was A
I used the same formula and got 11.3% annual std deviation. And 95% confidence interval is equivalent to 2 std deviations from the mean. But I am not sure how to proceed from there. I ended up doing 3% * (1+ 11.3%*2) = 3.677, which is like choice A. Don’t know if mean * (1 + std dev* n) is the right way of finding a confidence interval. Any thoughts?
It was A. I think 3.02 to 3.68 or something like that
Yeah, A was a best fit
yes the upper bound should be 3.67 % here is the calculation daily yield given= .7% therefore annual yield = .7%*sqrt(260)=11.28% yield = 3% so total bp change = 3*11.28 for 1 std deviation = 33.84 bps so the upper bound for 95% = 3% + ( 2*33.84/100) = 3.67% lower bound 3% - ( 2*33.84/100) = 2.32%
A was the correct answer. I chose b thinking 95% was 1stdev but its two. which gave answer a.
I got 3.22% sqrt (260) = 16.1245 x .007 (daily volatility) = .1129 (annual standard deviation) x 1.96 (95% confidence interval) = .2212 3± .2212 = 3.22% answer C but I think this might me wrong since my option pricing software says 3.67%
chowder Wrote: ------------------------------------------------------- > yes the upper bound should be 3.67 % > > here is the calculation > > daily yield given= .7% > therefore annual yield = .7%*sqrt(260)=11.28% > > > yield = 3% > so total bp change = 3*11.28 for 1 std deviation = > 33.84 bps > > so the upper bound for 95% = 3% + ( 2*33.84/100) = > 3.67% > lower bound 3% - ( 2*33.84/100) = 2.32% Never mind. I think you guys are right.
i f’d this one and only used 1 std dev, not 2. think i got B which is not right. -1.
Chowder This is exactly what I did, but I am not sure if this is right. If there are two normal distributions, one with a mean of 3%, another with a mean of 5%. Each with the same standard deviation. I feel the confidence interval should be the same size except shifted. With the calculations we have here, it seems the confidence interval’s size is related to the value of the mean. I think Sebrock is correct.
My way makes more sense to me but my option pricing software says 3.67% I dont understand, annual volatility is 11% then at 95% that is almost twice the volatility. Anyone have any clear views on this?
well, we need to do this without percentages is formula (0.03+0.007*16.1245*1.99)?
this would give you 3.22% which was choice C
this would give me 0.2546 LOL
there is a problem same as this but with 1 std deviation in schweser - page # 63 for fixed income-book 5
sebrock Wrote: ------------------------------------------------------- > I got 3.22% > > sqrt (260) = 16.1245 x .007 (daily volatility) = > .1129 (annual standard deviation) x 1.96 (95% > confidence interval) = .2212 > > 3± .2212 = 3.22% answer C > > but I think this might me wrong since my option > pricing software says 3.67% that’s correct. annualize the standard deviation, multiple by the Z-score (1.96). what’s up with your software
I think you need to give it different parameters and it bases the volatility on 365 days and does some funky calc for the weekends. I dont think the 3.67 it gave me is apples to apples. Anyways I’m pretty sure it’s 3.22 not 3.67 (they are multiplying by 3 sdevs).
I did what sebrock did and am fairly confident in it. Answer C is 3 + 2 times .11. Answer B was 3 + 3 times .11. I think they were trying to catch out whether you thought 95% meant 2 or 3 standard deviations from the mean.