Financial Question: Stock Return
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Use the following historical data over the 1926-2000 period to answer the following question.
Asset Average Return Standard Deviation
Large-company stocks 13.0% 20.2%
Small-company stocks 17.3% 33.4%
Long term government bonds 5.7% 9.4%
Us Treasury Bills 3.9% 3.2%
If the returns on large company stocks are normally distributed, for which of the following returns can you not state, with 95% confidence that next years stock return might be equal to? Show your work.
a. -30.4%
b. -25.6%
c. 20.3%
d. 33.5%
e. 52.0%
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Solution Summary
This solution shows step-by-step calculation to determine next year's stock return with a 95% confidence level.
Solution Preview
By the 68-95-99.7 statistical rule, we know that that 68% of all possible values lie within 1 standard deviation, 95% within 2 standard deviations, and 99.7% within 3 standard deviations.
The problem asks us to look specifically at large company stocks. The problem also ...
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