Question

13. The stock market return data follow a normal distribution (Bell-Shape Curve). If the average annual...


13. The stock market return data follow a normal distribution (Bell-Shape Curve). If the average annual return is 10%, and the standard deviation of annual returns is 15%, what conclusion could you draw on the possible returns over the next 100 years?
A. Approximately 68 out of 100 years, the returns will be greater than 10% but less than 15%.
B. Approximately 95 of out of 100 years, the returns will be greater than -20% but less than 40%.
C. Approximately 99 of out of 100 years, the returns will be greater than -20% but less than 40%.
D. Approximately 68 out of 100 years, the returns will be greater than -20% but less than 40%.

Homework Answers

Answer #1

We know that for a bell shaped distribution or normal distribution 68% of data fall within 1 standard deviation of the mean , 95% of data fall within 2 standard deviation of the mean and 99% of data fall within 3 standard deviation of the mean

we have mean = 10% and standard deviation = 15%

So, 68% of data will fall within

95% of data will fall within

99% of data will fall within

So, option B is correct because 95% of the data fall within -20% and 40%

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