The mean change in the value of a portfolio of trading assets has been estimated to be 0 with a standard deviation of 20 percent. Yield changes are assumed to be normally distributed.
-What is the maximum yield change expected if a 95 percent confidence (one-tailed) limit is used?

Question

Quizplus · Accepted Answer

Using a one-tailed 95% confidence level, we need to find the z-score that corresponds to the probability of 0.95. From the standard normal distribution table, this z-score is approximately 1.645. 
Then we use the formula: 
maximum yield change = z-score x standard deviation 
= 1.645 x 20% 
= 0.329 or 32.9%. 
Therefore, the maximum yield change expected is 32.9%. 
The closest answer choice is D (39.2%), which is within the confidence interval but higher than the actual expected maximum yield change.

The Mean Change in the Value of a Portfolio of Trading