Chapter_10_sol_students

# 01945or195 95confidenceintervalmeanreturnor

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Unformatted text preview: r your estimate of the expect return is closest to: A) -10.6% to 28.2% B) 6.8% to 10.7% C) -37.0% to 47.6% D) 4.9% to 12.7% Answer: D Explanation: A) B) C) R + R2 + ... + RN D) 0.878 Rannual = 1 = = 8.8% 10 N S&P 500 Realized Year End Return (R - R) (R - R)2 1996 23.6% 14.78% 0.0218448 1997 24.7% 15.88% 0.0252174 1998 30.5% 21.68% 0.0470022 1999 9.0% 0.18% 3.24E-06 2000 -2.0% -10.82% 0.0117072 2001 -17.3% -26.12% 0.0682254 2002 -24.3% -33.12% 0.1096934 2003 32.2% 23.38% 0.0546624 2004 4.4% -4.42% 0.0019536 2005 7.4% -1.42% 0.0002016 Variance = SUM of (R - R)2 / T - 1 = 0.3405116 / 9 = 0.0378346 Standard deviation = Variance = 0.0378346 = 0.1945112 Standard error = Standard Deviation / T = 0.1945112 / 10 = .01945 or 1.95% 95% Confidence Interval = mean return +or - 2 standard errors, so lower bound = .0878 - 2 × .0195 = 0.0488 upper bound = .0878 + 2 × .0195 = .1268 Diff: 3 Topic: 10.3 Historical Returns of Stocks and Bonds Skill: Analytical 10) Suppose that you want to use the 10 year historical average return on IBM to forecast the expected future return on IBM. The 95% confidence interval for your estimate of the expect return is closest to: A) 13.2% to 19.5% B) 10.1% to 22.7% C) 6.5% to 26.3% D) -15.1% to 47.8% Answer: B Explanation: A) R + R2 + ... + RN B) 1.638 Rannual = 1 = = 16.45% 10 N IBM Realized Year End Return (R - R) (R - R)2 1996 1997 1998 1999 2000 2001...
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## This note was uploaded on 05/03/2013 for the course FINANCE 354 taught by Professor Turner during the Fall '12 term at Maryland.

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