Standard Deviation of Foreign Equity in Domestic Terms

CFA Level III
#1

Can someone explain to me why you calculate standard deviation of foreign equity in domestic terms using whole numbers (ie 11.62 instead of .1162) but use them as fractions (.1162 instead of 11.62) when calculating the standard deviation of an all domestic portfolio. I know this sounds confusing but for an example look at CFAI Book 3 Page 393 explanations 9 and 10. Its a perfect example. #9 uses fractions, #10 uses whole numbers

#2

Bump

#3

I am sure you get the same answers. Taking 11.62 is easier to calculate than converting values into decimals points.

#4

The answer wouldn’t be the same because you are squaring a whole number versus a fraction.

#5

bump

#6

Haven’t looked at the examples. I always use a fraction when squaring, then convert back to % form if necessary. I found less error this way myself.

#7

naples111 Wrote: ------------------------------------------------------- > The answer wouldn’t be the same because you are > squaring a whole number versus a fraction. You are incorrect sir. It doesn’t matter.

#8

You get the same answer either way. ex. 10 if you do it with decimils, you get the same answer ex. 9 if you do it with whole numbers you get the same answer. it doesn’t matter how you do it.

#9

Agree that the answer should be the same, although haven’t looked at the examples.

#10

You will not get the same answer. When you square a number < 1 it gets smaller, when you square a number > 1 it gets larger.

#11

and when you take the square root of a number less then one, it gets bigger. Trust me it works either way.

#12

Well, it may not be the same. I would say always convert the number into fractions when squaring or square-rooting. Then put the answer either in % form or fractions. this is my steps anyway.