Question

Assume a stock's monthly returns follow a normal distribution with a mean of 8% and standard...

Assume a stock's monthly returns follow a normal distribution with a mean of 8% and standard deviation of 8%.

A) What is the lower bound of the 68.26% confidence interval on realized monthly returns?

B) What is the upper bound of the 68.26% confidence interval?

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Answer #1

The formula for Confidence interval has been given in the screenshot above.

In this formula, for confidence we use an excel function called.

=CONFIDENCE(alpha,standard_dev,size)

Where alpha is the significance level or 1- confidence level.

Standard dev is the standard deviation, and size is the sample size (N).

Putting in all the values we get the confidence value to be 1.75% using the normal distribution.

Now we have to just add and subtract this value from the mean to get the lower bound and the upper bound.

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