Of all the bonds currently rated B, 20% will default over an investors horizon. What is the expected number of defaults and the variance of the number of defaults in a randomly selected 40-bond portfolio over the investor
s horizon? The answer is: E(x)= (0.2)40=8 and Var(x)= (0.2)(0.8)40=6.4 Ok, i get the expected value part, but i don;t get the variance part. Help anyone? thanks.
formula for sd of binomial distribution is np(1 - p) is the answer wrong?
The answer i gave is the right answer… but the answer is based on the same formula that u state, however for variance and not standard deviation… I definitely confused here!
sorry my fault! the formula i gave is for variance… so that’s how the answer is derived !
I guess it`s very straightforward then…but I don;t remember seeing the formula in the readings (schweser notes). Anyways, thanks!!