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Schweser-Vol-2-Paper-2-Question-6

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    • Avatar of RaviVoodaRaviVooda
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        • CFA Level 3
        20 Oct 2017 at 8:28 pm
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        @alta12 @vincentt‌

        https://www.dropbox.com/s/qpla41p0t33ljwe/Screenshot%202014-05-24%2022.24.25.png

        For the solution to the problem where he is asking for utility, I think schweser has the formula wrong. He has given as

        E(R)-0.5*Riskfactor*sigma square

        In our CFAI text book we have it as E(R)-0.005*Riskfactor*sigma square

        Can you guys confirm if I am right?

      • Avatar of vincenttvincentt
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          • CFA Level 3
          20 Oct 2017 at 8:30 pm
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          0.5 and 0.005 can be used interchangeably.

          If your standard deviation is 12% instead of 0.12 you should use 0.005. However, if you decided to use 0.5 you should use 0.12.

        • Avatar of RaviVoodaRaviVooda
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            • CFA Level 3
            20 Oct 2017 at 8:32 pm
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            @vincentt, understood thanks.

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