P1.T2.206.2 and P2.T2.206.3 from Practice questions

[desaiha]

Both the questions under R8.P1.T2.Miller ask for 95% confidence of the realized average. Yet one uses the critical value of 1.65 and one uses 1.96. Why different critical values for same confidence in these two questions? Since there is no indication of two tailed or one tailed event, Shouldn't 1.96 be used for both of them.

 

[Alex_1]

Hi, please refer to the following post by David:
https://forum.bionicturtle.com/threads/p1-t2-206-variance-of-sample-average.5271/#post-25262

Summarized:

• 206.2 includes the wording "exceeds which level", which implies a similarity to the VaR concept and therefore a one-sided tail event
• 206.3 includes the wording "95% confidence interval, around this expected mean...", which indicates that we are looking for the lower and upper boundaries of an interval containing the basket's average default rate

I hope this helps.

 

[David Harper CFA FRM]

Thanks @Alex_1 ... perfect!

 

[desaiha]

Thanks. Got it!