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kindly explain how we derive 1.65 value for a 95% confidence level? how to use the standard normal distribution table to find this.
i will try to explain it to you in simple english. 95% confidence level means there is a 5% chance of making a loss. from the shape of the normal diagram there is a 50% chance that some will be above the mean and 50% chance that some will be below. those above the mean are the positive ones and those below are the negative ones. since we a looking at the negative side of things ie if things go wrong, thus subract 5% from 50 and you will get 45% which is 0.45 go to your normal distribution table and look for the figure that will give you 0.45. you will find that it lies between 1.64 will give you 0.04495 and 1.65 wil give you 0.4505. i hope it helps
NOW I WILL ADD THIS TO THE QUESTION IF ANYONE CAN HELPWHAT IS THE SIGNIFICANCE OF THIS 1.65
The significance of the 1.65 is that the ‘cut-off’ (the amount that there is a 5% chance of being below) is 1.65 x the standard deviation below the average.
so if the mean is 50000 and the standard devaition is say 5000 it means with a 95% confidence level, there is a 5% chance that the maximum loss will be 1.65 x 5000 = 8250. am i right?
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