Suppose that the following weekly interest rate volatility estimates are computed as:
absolute rate change = 3.85 basis points and percentage rate change = 2.14%.
What is the annualized volatility for the absolute rate change?
What will be an ideal response?
The formula for annualizing a weekly value is: weekly value × . Annualizing the weekly volatility measure for the absolute rate change, we get:
absolute rate change = 3.85 × = 27.76 or about 28 basis points.
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