Risk and uncertainty (part 2) - ACCA (AFM) lectures
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57 Comments
T
Tanja·
Hi Sir,
For the March 2026 session, will the standard deviation tables be provided, or will the standard deviation be included directly in the exam questions? Are these tables still part of the exam materials, or have they been removed? I also want to confirm whether there are any changes to how the Black?Scholes model is handled in the spreadsheet—will it be pre?populated, or do we need to perform the calculation manually?
Thank you.
T
Tanja·
Hi Sir,
For the March 2026 session, will the standard deviation tables be provided, or will the standard deviation be included directly in the exam questions? Are these tables still part of the exam materials, or have they been removed? I also want to confirm whether there are any changes to how the Black?Scholes model is handled in the spreadsheet—will it be pre?populated, or do we need to perform the calculation manually?
Thank you.
J
John MoffatTutor·
All will be provided if needed :-)
M
Mahrukh·
Hello,
Just wanted to ask if the spread is smaller, the size of standard deviation will be higher and the chances of returns falling to zero will be much higher, given the higher slope/decline rate of the returns
N
Navy·
Hi sir,
I wanted to ask since there is not normal distribution table on formula sheet anymore would it be safe to assume that the standard deviation points would be given in the question now?Thank you so much!
S
Sahil·
The answer in back of the notes and in this lecture are different. 1,233,750 is subtracted with the avg returns. What is the reason that?
O
Ou\'mair·
Isn't VAR the workings where Std Dev * probability level and thereafter the Expected value - VAR gives the minimum return at the confidence level?
Hence for the 6 year period, shouldn't we first look for the value at risk (VaR) for the 6 years which would be (VaR * root 6) ? You used the Std Dev * root 6
For 45% shall we consider SD on the table 1.65= says 0.4505,1.64=says 0.4495 .however as it stated in this lecture 1.645@750000 .
thanks for your support .
F
Fekadeselassiw·
it also stated 2.33 for the 99% confidence why did not consider like above 95% confidence between 2.32 and 2.33, @2.323
J
John MoffatTutor·
It is fine in the exam just to go to 2 decimal places rather than apportion between two.
R
Ron·
Hi sir. Thank you for the great lecture. Please may I ask, in the exam, if I straightaway multiply by 1.645 (for 95% confidence) or 2.33 (for 99% confidence) without showing how to get that figures (by deducting that 50%), will I still earn the marks?
Thank you.
J
John MoffatTutor·
Yes you will get the marks :-)
S
shaze2000·
Thanks for the lectures. You made the concepts very clear
Now I'm 80% confident that I'll clear the paper.
M
Michael·
When you say "It won't fall more than $1.23M" does that also mean, "Confident it won's fall BELOW $1.17M (2.4M - 1.23M)"?
J
John MoffatTutor·
Yes - they both mean the same :-)
V
VG·
Hello John,
If question ask for the confidence level of 88% which is (0.380) so do we use 1.175 SD using the table of normal distribution. please confirm
J
John MoffatTutor·
Yes - that is correct :-)
V
VG·
Thanks for the prompt help
J
John MoffatTutor·
You are welcome :-)
F
farhanhamza·
Sir, you have calculated the Standard deviation as root 6, for 6 years. How would you annualize the standard deviation if the expected value of a portfolio is given in two weeks time?
F
farhanhamza·
Will root of 2/52 work in such a situation? Assuming 52 weeks in a year.
S
sharon1507·
Hello, i can't understand how you get the figure 1.645 for a confidence level of 95%.
Please help. Thank you.
J
John MoffatTutor·
Because of symmetry, 50% is above the mean and therefore for a 95% confidence level, 45% must be below the mean.
We then use the tables 'backwards' to see how many std devn's give a probability of 0.45.
If you look along the 1.6 row in the tables, you will find that 1.64 gives a probability of 0.4495 and 1.65 gives a probability of 0.4505. So the figure we want is between the two.
S
sharon1507·
thank you loads John
J
John MoffatTutor·
You are welcome :-)
V
viktoriiatraksler·
Dear Sir, really sorry to ask once again about 1.645. It’s clear for me about 95%-50%, but what I lost is why we look at line 1.6 in the st.distribution table ;( Thank you for any comments.
J
John MoffatTutor·
It is because we are working backwards through the tables. and finding the value of z that gives an answer in the tables of 0.45
V
viktoriiatraksler·
Thank you
J
John MoffatTutor·
You are welcome :-)
G
Gnoii·
Dear Sir,
Calculations are all about deviation, confidence and then look up table, not any concerned from the annual return. So these returns (2,4M or 14,4M) are just for reference and comment, aren't they?
Thank you very much.
J
John MoffatTutor·
But you need those figures to then be able to calculate the value at risk for the particular confidence level.
T
Tashwita·
Hello Sir,
I did try this chapter from the study texts but didn't understand it at all...they use a sort of formula for VAR which is horrible.
Thanks a lot for such understandable lecture.
May god bless you sir.
J
John MoffatTutor·
Thank you for your comment :-)
C
Chants·
Thank you for this lecture, it's the first time I'm doing SD. Please may I ask when calculating the VAR over the project's life, why is the average 6 x $2.4m = $14.4m? As soon as I see "over the life" I think annuity and discounting. Although I realise there is no discount factor in the question, I'm thinking what if part of a bigger question? Many thanks
J
John MoffatTutor·
I don't understand why you think discounting - Value at Risk has nothing to do with discounting, and the question will specifically ask for the VaR if it is required.
We multiply by 6 because the question states that the project has a life of 6 years (I assume that you have downloaded the free lecture notes).
C
Chants·
Many thanks.
C
Chants·
Please let me know if we will ever need to calculate the standard deviation or will it always be given. I have seen in some textbook that there is a very long way to calculate it.
Z
Zhixiang·
Dear John,
Example 3, I know how to read the distribution table, but how did you get the 1.50 and 2.58? Thank you
J
John MoffatTutor·
As I say in the lecture, I am only using 1.50 and 2.58 to illustrate how to use the tables. I could have used any figures - all I am doing is explaining how to use the tables!
C
claudia1·
Ok Sir, you are perfectly correct of course. I forgot the part where 50 is deducted from 99. Thank you so much for the lecture. Understood.
C
claudia1·
Hello Sir, half of 99 is 49.5, so should we be looking at .495 in the table?...just making sure.
B
bucheeri88·
Hi Sir, I have a question relating to the normal distribution. Back in my earlier studies of normal distribution, when there is a 95% confidence level, we used to split the 5% (2.5% on each side). Same with a 97.5% confidence level (1.25% on each side). How come we only take the whole 5% on the negative side?
J
John MoffatTutor·
Because we are only concerned about the amount being lower, not higher.
(You are referring to what is called a two-tail test, where the variable may be higher or lower. This is a one-tailed test.)
A
adlin·
Understood thank you
J
John MoffatTutor·
You are welcome :-)
A
adlin·
I m confused as to what table he is referring to...?how did he get 1.645 value ?
J
John MoffatTutor·
The normal distribution tables that are given to you in the exam (and that are printed in our free lecture notes). I do explain this in the lecture!
3
3403263nya·
Very understandable. Thank you.
S
Said·
Very happy with this lecture! Thanks a lot
J
John MoffatTutor·
Thank you for your comment :-)
S
sampeat·
I just want to say thankyou, After watching the BPP lectures and reading the books I was confused still on Std Deviations. Your lecture has made it so much clearer.
J
John MoffatTutor·
Thank you for for your comment :-)
H
herafatima·
Hi John, the concept has been well explained in the lecture, the assumption is the spread is a normal distribution and hence the graph is symmetrical and hence there is a 50% chance of the return being higher or lower than the average return. Our solution of the distance is based on this assumption.
In the exam, can they ask us to calculate the VAR, where the spread is asymmetrical?
J
John MoffatTutor·
No, that is not possible. VaR always (in real life as well as in exams) assumes a normal distribution (which is symmetrical).
(That is one of the scary things about banks using it in real life (which they do!). Partly it is not necessarily normally distributed, but also even if it is and there is only a 1% chance of there being problems, that is 1 year in 100 and that 1 year could be next year :-) )
For the March 2026 session, will the standard deviation tables be provided, or will the standard deviation be included directly in the exam questions? Are these tables still part of the exam materials, or have they been removed? I also want to confirm whether there are any changes to how the Black?Scholes model is handled in the spreadsheet—will it be pre?populated, or do we need to perform the calculation manually?
Thank you.
For the March 2026 session, will the standard deviation tables be provided, or will the standard deviation be included directly in the exam questions? Are these tables still part of the exam materials, or have they been removed? I also want to confirm whether there are any changes to how the Black?Scholes model is handled in the spreadsheet—will it be pre?populated, or do we need to perform the calculation manually?
Thank you.
Just wanted to ask if the spread is smaller, the size of standard deviation will be higher and the chances of returns falling to zero will be much higher, given the higher slope/decline rate of the returns
I wanted to ask since there is not normal distribution table on formula sheet anymore would it be safe to assume that the standard deviation points would be given in the question now?Thank you so much!
Hence for the 6 year period, shouldn't we first look for the value at risk (VaR) for the 6 years which would be (VaR * root 6) ? You used the Std Dev * root 6
thanks for your support .
Thank you.
Now I'm 80% confident that I'll clear the paper.
If question ask for the confidence level of 88% which is (0.380) so do we use 1.175 SD using the table of normal distribution. please confirm
Please help. Thank you.
We then use the tables 'backwards' to see how many std devn's give a probability of 0.45.
If you look along the 1.6 row in the tables, you will find that 1.64 gives a probability of 0.4495 and 1.65 gives a probability of 0.4505. So the figure we want is between the two.
Calculations are all about deviation, confidence and then look up table, not any concerned from the annual return. So these returns (2,4M or 14,4M) are just for reference and comment, aren't they?
Thank you very much.
I did try this chapter from the study texts but didn't understand it at all...they use a sort of formula for VAR which is horrible.
Thanks a lot for such understandable lecture.
May god bless you sir.
We multiply by 6 because the question states that the project has a life of 6 years (I assume that you have downloaded the free lecture notes).
Example 3, I know how to read the distribution table, but how did you get the 1.50 and 2.58? Thank you
(You are referring to what is called a two-tail test, where the variable may be higher or lower. This is a one-tailed test.)
In the exam, can they ask us to calculate the VAR, where the spread is asymmetrical?
(That is one of the scary things about banks using it in real life (which they do!). Partly it is not necessarily normally distributed, but also even if it is and there is only a 1% chance of there being problems, that is 1 year in 100 and that 1 year could be next year :-) )