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Dear Sir,
In this problem at variance of cash flows = 1,000 * 1,000 = 1,000,000 per day. Please, tell me if is there any formula for this? i tried in study book but i couldn’t find anything in this sens.
Thank you,
The variance is the square of the standard deviation.
It is the only topic in the whole of F9 that mentions either standard deviation or variance, so understanding them is irrelevant. It really is naughty of the examiner to expect you to know it.
(Ulnad was actually a question in a pilot paper many years ago. He has never actually asked you to use the formula with the variance in it, and I don’t think he ever will!!
Certainly you should be able to describe Miller-Orr for a written part of a question, but the only time he has asked any numbers in a real exam it was a small part of a question and he gave you the figure for the spread – you didn’t have to calculate it.)You may find my free lecture on this useful, where I make the above points.
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