Ch 15 Q 15.12

[Srijana Raghunath]

What is the difference between Q 15.10 and Q 15.12? Why do we have to calculate probability using standard normal distribution in Q 15.12 while we don't do so for Q 15.10?

 

[John Lee]

Bit confused. Questions in Chapter 15 only go up to Q15.11.

 

[9346776]

Question 15.10 the annual growth rate vary independently whilst the one in 15.12 does not.

 

[Srijana Raghunath]

Bit confused. Questions in Chapter 15 only go up to Q15.11.

There is Qs 15.12..

A lump sum of $14,000 will be invested at time 0 for 4 years at an annual rate of
interest i . The interest rate, once determined, will be the same in each of the four years.
1+ i has a log-normal distribution with mean 1.05 and variance 0.007. Calculate the
probability that the investment will accumulate to more than $20,000 in 4 years’ time.

 

[Srijana Raghunath]

Question 15.10 the annual growth rate vary independently whilst the one in 15.12 does not.

I am not sure that is the reason...when u go to Part 4 Qs and As, there are problems which are similar to Q 15.10, but solved by standardizing..

 

[John Lee]

Apologies, I was looking at 2015 notes not 2016.

The difference is that in Q15.10 we are given the \(\mu\) and the \(\sigma^2\) whereas in Q15.12 we are given the mean and variance. Hence in Q15.12 you have to solve the equations to get the \(\mu\) and the \(\sigma^2\).

 

[Srijana Raghunath]

Thank you...I get it now

 

[John Lee]