I'm preparing for my FRM II test in May. Could someone help to explain where does the 0.0823 come from? 😥
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1 Answer
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$P_2-P_1$ where:
$P_1=\frac{1000}{\left(1+\frac{0.06+0.04}{2} \right)\left(1+0.05 \right)}$
$P_2=0.5\frac{1000}{\left(1+0.06 \right)\left(1+0.05 \right)}+0.5 \frac{1000}{\left(1+0.04 \right)\left(1+0.05 \right)}$
answered Mar 8, 2020 at 23:28