easy · FRM Part 1 Valuation and Risk Models
An analyst performs a Principal Component Analysis (PCA) on 4 correlated interest rate factors. The eigenvalues of the covariance matrix are λ_1 = 3.2, λ_2 = 0.5, λ_3 = 0.2, and λ_4 = 0.1.
What percentage of the total variation is captured by the first two principal components?
- 97.5%
- 37.0%
- 80.0%
- 92.5%
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