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April 2009

S

scr123

Member
The first part of the solution calculates the mean as 4.08

V=E[(x-mu)^2]

The variance is calculated using 3.36. How did they get this?

Is there a general formula I can use when calculating the market variance in these types of questions?
 
That 3.36% looks like a typo, as the end answers:

variance = 2.2274%% = (1.508%)^2

mkt price of risk = (4.08 - 2.5)/1.508 = 1.048

are both correct!!
 
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