Financial Risk Manager Part 1

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Explanation:

Testing the variance of a normally distributed population involves the chi-squared test.

First, we deannualize the annual hypothesized volatility
$`$ 35`% / \sqrt{250} = 2.21%.

(This assumes 250 trading days in a year; it would be equally acceptable to assume 252 days.) Second, we compute the chi-squared statistic as follows: $(35 - 1) \times 2.8^2 / 2.21^2 = 54.40$. (Book 2, Module 14.1, LO 14.a)

Explanation:

Testing the variance of a normally distributed population involves the chi-squared test.

First, we deannualize the annual hypothesized volatility
$`$ 35`% / \sqrt{250} = 2.21%.

(This assumes 250 trading days in a year; it would be equally acceptable to assume 252 days.) Second, we compute the chi-squared statistic as follows: $(35 - 1) \times 2.8^2 / 2.21^2 = 54.40$. (Book 2, Module 14.1, LO 14.a)

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Last updated: July 3, 2026 at 10:47

F-statistic, 21.

F-statistic, 54.

Chi-squared statistic, 21.

Chi-squared statistic, 54.