Question

# Consider the following table for the total annual returns for a given period of time.   Series...

 Consider the following table for the total annual returns for a given period of time.
 Series Average return Standard Deviation Large-company stocks 10.8 % 21.1 % Small-company stocks 16.4 33.0 Long-term corporate bonds 6.2 8.4 Long-term government bonds 6.1 9.4 Intermediate-term government bonds 5.6 5.7 U.S. Treasury bills 3.8 3.1 Inflation 3.1 4.2
 Requirement 1: What range of returns would you expect to see 95 percent of the time for large-company stocks? (Negative amount should be indicated by a minus sign. Input your answers from lowest to highest to receive credit for your answers. Do not round intermediate calculations. Enter your answers as a percentage rounded to 2 decimal places (e.g., 32.16).)
 Expected range of returns % to   %
 Requirement 2: What about 99 percent of the time? (Negative amount should be indicated by a minus sign. Input your answers from lowest to highest to receive credit for your answers. Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places (e.g., 32.16).)
 Expected range of returns % to   %

Part 1

For 95% probability, range would fall within +-2 SD.

Range = Average return – 2 SD   to average return + 2 SD

= 10.80% - 2 x 21.10%   to 10.80% + 2 x 21.10%

= -31.40% to 53%

Part 2

For 99% probability, range would fall within +-3 SD.

Range = Average return – 3 SD   to average return + 3 SD

= 10.80% - 3 x 21.10%   to 10.80% + 3x 21.10%

= -52.50% to 74.10%

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