Financial Risk Manager Part 1

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Explanation:

The 95% confidence interval is given by:

E_T(Y_{T+h}) \pm 1.96\sigma

We need:

E_T(I_3) \pm 1.96\sigma

First, calculate the expected value:

E_T(Y_{T+h}) = \sigma_0 + \sigma_1(T + h)

= -0.001567 + 0.000134 \times 3 = 0.0025

Then calculate the confidence interval:

E_T(I_3) \pm 1.96\sigma = 0.0025 \pm 1.96 \times 0.0342

= 0.0025 \pm 0.067032

= [-0.064532, 0.069532] \approx [-0.0645, 0.0695]

Therefore, the 95% confidence interval for interest rate movement 3 years from now is [-0.0645, 0.0695].

Explanation:

The 95% confidence interval is given by:

E_T(Y_{T+h}) \pm 1.96\sigma

We need:

E_T(I_3) \pm 1.96\sigma

First, calculate the expected value:

E_T(Y_{T+h}) = \sigma_0 + \sigma_1(T + h)

= -0.001567 + 0.000134 \times 3 = 0.0025

Then calculate the confidence interval:

E_T(I_3) \pm 1.96\sigma = 0.0025 \pm 1.96 \times 0.0342

= 0.0025 \pm 0.067032

= [-0.064532, 0.069532] \approx [-0.0645, 0.0695]

Therefore, the 95% confidence interval for interest rate movement 3 years from now is [-0.0645, 0.0695].

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NNikitesh

Last updated: February 2, 2026 at 10:22

[0.9517, 0.6257]

23.1%

[-0.6917, 0.8259]

30.8%

[-0.0645, 0.0695]

30.8%

[0.7917, -0.6917]

15.4%