For the Li itemset, question 3, they are asking you to calculate the new volatility for SCIRP. I get the equation and formula except for one part. What is the variance of the error term??? How do they get 0.0770?

They backed it out.

This is the most weird question in all mocks I’ve done…

After 30 mins I figured it out. And you’re supposed to do that in how many minutes???

you actually do not need to back out stuff. (and you do not need to calculate either)

original SCIRP Variance with 0 correlation = 0.2704

now with 0.25 correlation - it is supposed to go up only. (Variance and hence std dev).

so new variance = 0.2704 + 2 (1.02) (1.045) (0.25) (0.28) (0.32) = 0.2704 + 0.0448 = 0.3181

std dev = 0.564

now if you look at the other answer choices - by elimination too you can do it.

31.8 and 49.1 rules themselves out - since 31.8%^2 < 0.2704 and 49.1%^2 = 0.241 < 0.2704

^legend

its the error term …