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FRM Part I · FRM Exam Part I · Simulation and Bootstrapping

An analyst bootstraps the mean of a sample of 100 returns with sample standard deviation 4%. Using many resamples of size 100, the bootstrap standard error of the mean should be approximately:

The bootstrap standard error of the mean approximates s divided by the square root of n, which is 4% divided by 10, or 0.4%. Using 4% ignores sample size, and 0.04% wrongly divides by n rather than its square root.

  1. A0.4%Correct
  2. B4%
  3. C0.04%
  4. D40%

Explanation

For the sample mean, the standard error is s divided by the square root of n, so 4% / sqrt(100) = 0.4%. The bootstrap distribution of resampled means approximates this. Using 4% ignores the division by root n; 0.04% divides by n instead of its root.

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