Question

A stock had returns of 14 percent, 13 percent, −10 percent, and 7 percent for the...

A stock had returns of 14 percent, 13 percent, −10 percent, and 7 percent for the past four years. What is the 99 percent probability range of returns for this stock?

A.

−16.2 percent to 17.1 percent
B.

−5.1 percent to 17.1 percent
C.

−16.2 percent to 28.2 percent
D.

−27.3 percent to 39.3 percent
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Answer #1

E(r) = [Ri] / n = [14% + 13% - 10% + 7%] / 4 = 24% / 4 = 6%

= [{E(r) - Ri}2 / (n - 1)]1/2

= [{(6% - 14%)2 + (6% - 13%)2 + (6% + 10%)2 + (6% - 7%)2} / (4 - 1)]1/2

= [{64%2 + 49%2 + 256%2 + 1%2} / 3]1/2 = [370%2} / 3]1/2 = [123.33%2]1/2 = 11.11%

95 percent probability range = 6% ± (3 x 11.11%)

Range = -27.32% to 39.32%

Hence, Option "D" is correct.

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