The mean change in the value of a portfolio of trading assets has been estimated to be 0 with a standard deviation of 20 percent.Yield changes are assumed to be normally distributed. What is the maximum yield change expected if a 95 percent confidence (one-tailed) limit is used?
A)3.30%.
B)20.0%.
C)33.0%.
D)39.2%.
E)46.6%.

Question

Quizplus · Accepted Answer

To find the maximum yield change expected at a 95% confidence level, we need to use the formula:
maximum yield change = mean + (z-score)*(standard deviation)
We know the mean change is 0 and the standard deviation is 20%. The z-score for a 95% confidence level can be found using a standard normal distribution table or calculator and is approximately 1.645 (since it is a one-tailed test).
Therefore, the maximum yield change expected would be:
maximum yield change = 0 + (1.645)*(20%) = 0 + 0.329 = 0.329 or 32.9%
Rounded to one decimal place, the closest answer choice is D) 39.2%.

The Mean Change in the Value of a Portfolio of Trading