Solution to September 2007, Q6 in Revision Notes

In part (iv) a) of the solution, I do not follow how we derive (6) from
(5)....
here, the solution deals with the M-V space instead of the M-SD.

Also, i have a general question about the scale to use in calculations.
In the notes, calculations are often done in percentages. for example, in this question the numbers for return and variance are '20%' and '400%%', while the examiners use '0.2' and '0.04'. i am unable to tell for which questions is safe to use which. i understand using percentages is faster but can easily get confused with them. especially when it gets down to complex manipulations in the final parts of questions ( is it safer to always use '0.0000... ' then)?
how do you decide which scale to use?

(it could be a question for dummies but thats who the revision notes are for, arent they?

 

Hi,

See the attached more detailed solution of this part of the question, which may help you to see what's going on. However, this bit of question is very (a) non-standard and (b) tricky and so I think it unlikely (but not impossible) that something similar will come up again soon.

As to whether to use, 20% or 0.2 say, I suggest always using whatever is used in the question, which in this case was 20%, ie percentages. However, you should be able to get the correct answer either way.