For EOC Problem #12 part A, how do they calculate the downside deviation? Here are my numbers for the hedge fund, which don’t tie: Downside deviation = [(0 + 0 - 2.42% - 2.42% - 1.42% + 0 - 1.42% + 0 + 0 + 0 - 0.017% - 3.62%)^2 / 11]^1/2 = 3.41% The book says = (28.78/11)^1/2 * (12)^1/2 = 5.60%. Since the book multiplies by the root of 12 (2nd term), it implies the first term’s a monthly variance. However I have no idea how they get the 28.78. Maybe it’s really simple and I’m just p*ssed from missing St Paddy’s Day for the 4th straight year??! (started the CFA program in '07)
Hi N95E, I can help you out with that. Downside Deviation = [0^2+0^2+(-0.02417^2)+(-0.02417^2)+(-0.01417^2)+0^2+(-0.01417^2)+0^2+0^2+0^2+(-0.00017^2)+(-0.03617^2)] = 28.88 (they get 28.78, so must be some rounding error) I think what you have done is that you have added all the deviations first and squared them all together instead of squaring them separately and then adding them. The rest should be as explained by the book. Hope that clears up ur issue. I actually have a question about this problem myself - 12.B to be exact. They say annualized return for the hedge fund is 0.6133%*12 = 7.360%. Where is this 0.6133% coming from? If i just compound the returns, I am getting 7.613%. Same case with the index returns of -0.449%. I am confused about this methodology. TIA.
Thanks sparty419… appreciation the clarification. It’s obviously been several years since I sat in a Stats class. I’ll re-look at Part B tonight (book’s at home) & see if can figure out your question.
Did any of you guys the return out in part B? I can’t get their answer either and feel like an absolute moron. Tried a few different methodologies with zero success.
Compounded annual return + 1 = 1.07613
12th root of 1.07613 = 1.07613^(1/12) = 0.6133%
0.6133% * 12 = 7.360%
'09 for me, no worries 
keep on working and we’ll get through