Fixed income: Reading55 page 265 why, currently, question, standard

atate2007

reading 55, page 265, question 21: why annualized standard deviation for daily yield is 7%, currently yield is 5%, then 5% * 7% is the new annualized standard deviation? (from the answer).
I’ve stuck on this questions for along time and don’t get it…..

yodacaia

I don’t understand your question. what are you asking, and what is the original textbook question?

Matori

Original Question:
Suppose that the annualized standard deviation for the change in the 2-year Treasure yield based on daily yields is 7% and the current level of the 2-year Treasury yield is 5%. Assuming that the probability distribution for the percentage change in 2-year Treasury yields is approximately normally distributed, how would you interpret the 7% annualized standard deviation?
Note:
The mean of change in yield is 0.
So, 68.3% of change is -7% to 7%.
Now we know what the change is, apply that to the yield which is 5%.