CFA Practice Question

There are 147 practice questions for this study session.

CFA Practice Question

Assume that the annualized standard deviation of the 10-year Treasury yield is 4%. The current level of the 10-year Treasury yield is 6%. The probability distribution for the percentage change in 10-year Treasury yields is approximately normally distributed. Given that there is a 68% probability that the yield will be between one standard deviation below and above the expected value, we can conclude that there is a 68% probability that the yield next year will be between ______ and ______.
A. 5.84% and 6.16%.
B. 2% and 10%.
C. 5.76% and 6.24%.
Explanation: Since the current level of the 10-year T-yield is 6%, then the annual standard deviation of 4% translates into a 24 basis point standard deviation (4% x 6% = 0.24%). The mean is 6%. The yield will be between 6% - 0.24% and 6% + 0.24%.

User Contributed Comments 5

User Comment
tsiapras the calc. is as follows: 6% +/- 1*(4%*6%)= answer c

the key is to consider that the yield is "bewteen one standard deviation" i.e. 1*(4%*6%)
dblueroom The key is to translate 4% annual std to 24 bps std. I figured out the 1 standard deviation from the 68% confidence interval.
aggabad volatility=standard deviation
thanhb91 For lognormal distribution, the standard deviation of one year rate is: i*sd = 4%*6%
linhgaga hi can someone explain in more detail why we can't use 4% as sd?
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