Firm A has experienced returns of -1.56%, 5.57%, 12.41%, and 2.49% in the last four years. What is the 95% confidence interval?
Expected Return = [-0.0156 + 0.0557 + 0.1241 + 0.0249] / 4
Expected Return = 0.1891 / 4
Expected Return = 0.0473 or 4.73%
Variance = [(-0.0156-0.0473)^2 + (0.0557-0.0473)^2 +
(0.1241-0.0473)^2 + (0.0249-0.0473)^2] / 3
Variance = 0.010427 / 3
Variance = 0.003476
Standard Deviation = (0.003476)^(1/2)
Standard Deviation = 0.0590 or 5.90%
95 Confidence Interval = [Expected Return - 2 * Standard
Deviation, Expected Return + 2 * Standard Deviation]
95 Confidence Interval = [4.73% - 2 * 5.90%, 4.73% + 2 *
5.90%]
95 Confidence Interval = [-7.07%, 16.53%]
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