The formula has the variance in it, and the variance is the square of the standard deviation.
You cannot be tested on the rationale, but if you want to know more about the variance then watch the Paper MA (was Paper F2) lectures on statistics.

Could you please explain how did you work out the answer for Example 3 chapter 6. For the formulae Spread, I did not how did you do to get to to: 14,250? Thank you.

I am a bit puzzled as to which bit of the calculation you are not clear about, because I do go through the workings in the lecture and otherwise it is just calculator work.

(I assume you are clear that taking something to the power of 1/3 is another way of writing that it is the third root of what is in the brackets, and obviously for that bit you need to be using a scientific calculator.)

The calculations needed depend what information is given in the question. If you look at questions on this in your Revision Kit then you will see what I mean.

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plightbourne says

I just watched the full lecture so you can DISREGARD my previous comment

vir619 says

(3/4*5*400000/0.00014)^(1/3)

i applied this formula on excel sheet and the result coming out is 2204 instead of 4750.

John Moffat says

2,000^2 = 4,000,000 (not 400,000)

vir619 says

yes.. i didn’t notice that..and may be there is a printing mistake on the note.. 400000 is written there…

John Moffat says

You are correct – thanks. I will have it corrected.

However I think (hope!) that I show the correct figures in the lecture 馃檪

plightbourne says

Hello,

I was able to work out the answer based on your comments. Please humor me as this aspect of math has never been my strong point.

I don’t get the rationale behind ‘2,000^2’ for the daily deviation. Explain this to me like you would a ‘5 year old’

John Moffat says

The formula has the variance in it, and the variance is the square of the standard deviation.

You cannot be tested on the rationale, but if you want to know more about the variance then watch the Paper MA (was Paper F2) lectures on statistics.

kimbeckett1 says

Hi Sir

Could you please explain how did you work out the answer for Example 3 chapter 6. For the formulae Spread, I did not how did you do to get to to: 14,250? Thank you.

John Moffat says

I am a bit puzzled as to which bit of the calculation you are not clear about, because I do go through the workings in the lecture and otherwise it is just calculator work.

(I assume you are clear that taking something to the power of 1/3 is another way of writing that it is the third root of what is in the brackets, and obviously for that bit you need to be using a scientific calculator.)

kimbeckett1 says

Thank you Sir, I got it.

John Moffat says

Great 馃檪

dheel says

Sir, why did you use the daily interest rate in the formula?

Samuel Koroma says

The calculations are as follows:

(a) upper limit

(b) lower limit

(c) spread

(d) return point

The spread is needed to calculate the return point and the upper limit

John Moffat says

I don’t really know why you have written this 馃檪

The calculations needed depend what information is given in the question. If you look at questions on this in your Revision Kit then you will see what I mean.

Samuel Koroma says

Okay sir noted. I did that just to recall what I learnt from your presentation.

John Moffat says

OK 馃檪