Question

Assume that the average annual historical return for shares that comprise the Australian All Ordinaries index...

Assume that the average annual historical return for shares that comprise the Australian All Ordinaries index is 10.5%, and the standard deviation of returns is 18.5%. Based on these numbers what is a 95% prediction interval for 2020 returns?

Homework Answers

Answer #1

Given about Australian All ordinaries index,

Average return u = 10.50%

standard deviation s = 18.50%

For a prediction interval of 95%, approximate value of Z = -2 to +2

So, range of return is from (u-Z*s) to (u+Z*s) = (10.50 - 2*18.5) to (10.5 + 2*18.5)

Range = -26.50% to 47.5%

But exact value of Z used for this range is 1.96

So, using Z = 1.96, we get range = -25.76% to 46.76%

Please use answer (-26.5% to 47.5%) if you use approximate Z value. or use answer (-25.76% to 46.76%) if you use exact Z values in calculations.

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