Safety-first rules, comfused because, standard, expected, 214

Muddahudda

In Notes, Book 1, Page 214.

"professor's notes: Using a measure of two standard deviations places a 95% confidence interval around the expected return. If the client's minimum allowable return falls at least two standard devations below the expected return(i.e., it falls in the 2.5% lower tail of the distribution), the clients can be 95% confident the minimum allowable return will not be violated."

I think because of one tail distribution, here should be 97.5% confident interval.

Any one helps?

IAmNeil

Hi, guys.

I get this one.

"it is 95% confidence of a one-tailed distribution. Loss is one-sided ( always below mean) . That would be 2-stdev below mean. "

this is the key.

Thanx!

Zestt

go back - refer to level I -- check 2 tailed test for 5% Level of Significance - what it really means...

that is what mik82 is referring to.

CP

strikethree

I'm sorry to ask this L1 question again

"If the client's minimum allowable return falls at least two standard deviations below the expected return(i.e., it falls in the 2.5% lower tail of the distribution), the clients can be 95% confident the minimum allowable return will not be violated."

I think the clients can be 97.5% confident the minimum allowable return will not be violated.

--no "interval" here.

lcai

mik82 Wrote:
-------------------------------------------------------
>
> No. Please go back and read level 1 books about
> normal distribution.


I get through that material, but still miss the point.

please explain detailly, thanx!!!

mp3bu

Thanx guys!!!

zwjy

even if its normal distribution, it is actually 97.5% confidence interval that the minimum allowable return will not falls more than two standard devations below the expected return.

is it right?

bpdulog

We are talking about normal distribution here, so two tails.

jmh530

mik82 Wrote:
-------------------------------------------------------
> The distribution is two tails, but the advisor is
> only concerned about the left tail, the negative
> returns, so the 2.5% in a two tail distribution is
> 5% or 95% confidence interval.


then why not choose a one tail distribution? becasue it only concerns the left tail.

bkballa

The distribution is two tails, but the advisor is only concerned about the left tail, the negative returns, so the 2.5% in a two tail distribution is 5% or 95% confidence interval.