I saw this question the past exam of September 2001 Q.5 (1 + it) follows a log normal distribution where it is the rate of interest over a given time period beginning at time t. The parameters of the distribution are μ = 0.06 and σ2 = 0.0009. Calculate the inter-quartile range for the accumulation of 100 units of money over the given time period, beginning at time t. From the solution I can tell it's meant to be easy-peasy but I've not being able to get how it was solved or what was done. Can someone please break it down for me. Thanks guys.
That's an old one!! The accumulated value is 100 (1+i). If the lower and upper quartiles are L and U respectively, then: P(100(1+i)<L) = 0.25 P(100(1+i)<U) = 0.75 Do the usual Normal standardisation on each of these, look up the values of phi on page 162 of the Tables and use it to finish off.
