Hey Everyone, Im facing with a pretty basic problem in the log-normal distribution. I understand the link between the log normal distribution of the interest growth rates and the Sn values. However, I do not know how to calculate the probabilities corresponding to the values calculated by using the normal distribution formula. I can't really understand how to interpret the normal distribution table in the Formulae and Tables Booklet( perhaps because during the course of my A Levels, the normal distribution table which I used was way different) I would highly appreciate if someone could teach me how to use the tables to calculate the probabilities, since I am stuck with this problem at Q 15.10 and the second Exam Style Question. Cheers everyone.
Hey everyone. Im still waiting for someone to clarify out to me . However, I was solving the exam-style question no 2 from chapter 15 right now, and I kind of figured out the answer myself, but I need to confirm whether the method I have used is correct or not. 1) I require the probability of z>0.547. From the percentage points table for the Standard Normal Distribution given on pg 162 of the Formula and Tables booklet, I read off the following two values: * 0.5244, which has a probability of 0.30. * 0.6745, which has a probability of 0.25. 2) Since the probability of z would fall between the above stated values, I used the following formula: (0.547-0.5244)/(0.6745-0.5244)=(x-0.30)/(0.25-0.30). I solved for x and got 0.292 as my answer. Could someone please tell me whether the method I have used is correct,and whether this is the method for finding out the probabilities of all values of z( since the table does not list down the probabilities corresponding to all values of z) Cheers everyone. Here's hoping someone helps me out quickly
Your method is correct, but i don't usually interpolate the percentage points table because it goes up in 5% blocks.. it is more accurate to use the normal cdf tables (This gives the area to the left of the value as opposed to the right in the case of the percentage points table).. in your case you want P(Z>0.547) so you can say this is equal to 1-P(Z<.547).. You can look this probability up directly in the normal cbf tables (or interpolate if required).
Though having chatted to the CT1 examiners - they said they're not too worried about interpolation (please note this is for CT1 only!) Though it's good prep for CT3, CT6 et al.
