2018 Q1_D
When solving for sigma and mu we arrive at two possible answers for sigma and mu. (0.7019, 14.2624) and (3.9501, 6.7071). How do we know which sigma and mu are the correct sigma and mu to calculate the CV.
When solving for sigma and mu we arrive at two possible answers for sigma and mu. (0.7019, 14.2624) and (3.9501, 6.7071). How do we know which sigma and mu are the correct sigma and mu to calculate the CV.
Comments
You don't know which pair is correct until you calculate the resulting CoV for each. The question tells us to assume the coefficient of variation is less than 100%, so we select the pair which satisfies this condition.
Hi, May I ask if this problem is still testable since capital related materials have been removed?
Yes, this question is definitely testable. While the capital related materials have moved to Exam 9, this question is really testing whether you can work with moments from a lognormal distribution which is covered in the Bahnemann paper.
Hopefully the CAS would change the context of the question to not involve capital modeling should they ask something like this in the future.