- CFA Exams
- CFA Level I Exam
- Topic 6. Fixed Income
- Learning Module 26. The Term Structure and Interest Rate Dynamics
- Subject 5. Yield Curve Factor Models
CFA Practice Question
To calculate the historical annual yield volatility of a bond, an investor should decide:
II. Which calculation method to use.
III. How many days in a year to use to annualize the daily standard deviation.
I. How many daily observations to use.
II. Which calculation method to use.
III. How many days in a year to use to annualize the daily standard deviation.
Correct Answer: I and III
There is only one calculation method. If you have daily yield: annual standard deviation = daily one x (number of days in a year)1/2
User Contributed Comments 4
| User | Comment |
|---|---|
| katybo | and implied volatility? I think the question was not how to anualize std dev. |
| bmeisner | Yes there are also many different assumptions to be made such as if X-avg should be set to 0. |
| ljamieson | There was no mention of implied vol, only historical vol. |
| ericczhang | Even if the question didn't make it clear that they were talking about historical volatility, you wouldn't really annualize a less than 1-year option implied volatility to get a 1-year option implied volatility. It would either be a) the market for the options you choose to use assume volatility is constant, so your implied 1-year volatility should be the same as your less-than-1-year volatility or b) you have 1-year options available to directly take the 1-year implied volatility. |