Hi, I was looking over question 15.11 the last question in the combined material pack which is: Derive expressions for the mean and var of the accumulated value of 1 unit after n years for the fixed interest rate model, assuming the annual growth rate has a log-normal distribution with parameters mu and (standard dev)^2. I think there is a mistake in the solution as they get s_n=(1+i)^n ~log N(n(mu),n^2(standard dev)^2) where as i think it should be s_n=(1+i)^n ~log N(n(mu),n(standard dev)^2) they have also applied the square when taking E(s_n) and Var(s_n) Can somebody check and let me know. Thanks for your help in advance. Kind Regards
It is correct. The difference to the usual formula is that this is for the "fixed" model. Exam questions have only been on the "variable" model and so always have the nσ² f6r the variance.
