Ch 12 Problems

Ch 12 Problems - Mean = ( .08 + .12 + -.04) / 3 = .0533...

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Comprehensive Problem Your stock investments return 8 % , 12%, and -4% in consecutive years. What is the geometric return? • What is the sample standard deviation of the above returns? Using the standard deviation and mean that you just calculated, and assuming a normal probability distribution, what is the probability of losing 3% or more? 12-30 (1.08 x 1.12 x .96)".3333 -1 = .0511
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Unformatted text preview: Mean = ( .08 + .12 + -.04) / 3 = .0533 Variance = (.08 - .0533)"2 + (.12 - .0533)"2 = (-.04 - .0533)"2/ (3 - 1)= .00693 Standard deviation = .00693 " .5 = .0833 Probability: a 3% loss (return of -3%) lies one standard deviation below the mean. There is 16% ofthe probability falling below that point (68% falls between -3% and 13.66%, so 16% lies below -3% and 16% lies above 13.66%). 10.30...
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