Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AFM Exams › confidence level
 This topic has 11 replies, 6 voices, and was last updated 8 years ago by John Moffat.

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May 29, 2012 at 2:38 pm #52950snake681218
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dear tutor:
I learned that with 95% confidence level, we can get 1.645in our VaR calculation, can you advise, how can we get this number (1.645)from the standard normal distribution table? I do not know how to use the table to get this data. thanks a lot.
May 30, 2012 at 2:18 pm #98581nonoacca Topics: 5
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just remember ,it is a math question… when you learn math you will know it.95%=1.645,99%=2.330
May 30, 2012 at 7:46 pm #98582John MoffatKeymaster Topics: 57
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@snake681218 said:
dear tutor:I learned that with 95% confidence level, we can get 1.645in our VaR calculation, can you advise, how can we get this number (1.645)from the standard normal distribution table? I do not know how to use the table to get this data. thanks a lot.
What you do is this:
For 95% confidence, we need to know the number of standard deviations where the is a 5% chance of being below the average.
There is a 50% chance of being above average and 50% chance of being below average, and so the limit for their being a chance of being 5% below is 45% away from the average (50% – 5%).
So you look in the tables and find how many standard deviations give an answer of 45% or 0.4500.
If you look at the tables, 1.64 standard deviations gives an answer of 0.4495, and 1.65 standard deviations gives an answer of 0.4505 so for 0.4500 it is somewhere between the two – approximately 1.645 (approximate, because in fact it is not linear).
Using the same logic, for 99% confidence you want an answer of 49% (or 0.49). (50% – 1% = 49%)
From the tables, you will see that 2.33 standard deviations gives an answer of 0.4901, which is close enough 🙂
May 30, 2012 at 7:46 pm #98583John MoffatKeymaster Topics: 57
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Its not actually maths – it is statistics.
June 1, 2012 at 12:42 am #98584snake681218 Topics: 9
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Thank you so much! You really help a lot.
June 1, 2012 at 11:05 am #98585John MoffatKeymaster Topics: 57
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You are welcome 🙂
August 7, 2012 at 10:16 am #98586angryhamtaro Topics: 10
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I stumbled upon this through Google. Thanks John, you’re my big savior! 🙂
August 7, 2012 at 12:54 pm #98587John MoffatKeymaster Topics: 57
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You are welcome 🙂
August 12, 2012 at 1:39 pm #98588nandinigirish Topics: 4
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Amazing, I been taught by 2 different teachers used complicated method. But this method of calculating confident level is superb. Thank you very much.
August 13, 2012 at 1:52 pm #98589John MoffatKeymaster Topics: 57
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@nandinigirish said:
Amazing, I been taught by 2 different teachers used complicated method. But this method of calculating confident level is superb. Thank you very much.You are welcome 🙂
October 22, 2013 at 7:11 am #143355ayish Topics: 15
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this is the most useful site ive ever come across…always find solutions to all my study problems here…thanku john…this method is super easy.. God bless u 🙂
October 22, 2013 at 10:26 am #143372John MoffatKeymaster Topics: 57
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You are welcome as well 🙂

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