Chapter_10_sol_students

1025221 variancesumofr r2t 126481554902942395

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Unformatted text preview: 14.32% -21.98% -22.20% -31.78% 22.21% 2.07% -3.63% 0.0104625 0.03763 0.0128899 0.0205182 0.0483043 0.0492984 0.1009717 0.0493349 0.0004274 0.0013148 Variance = SUM of (R - R)2 / T - 1 = 0.3311521 / 9 = 0.0367947 Standard deviation = Variance = 0.0367947 = 0.1918194 Standard error = Standard Deviation / T = 0.1918194 / 10 = .01918 or 1.92% 95% Confidence Interval = mean return + or - 2 standard errors, so lower bound = .1093 - 2 × .0192 = .0709 or 7.09% upper bound = .1093 + 2 × .0192 = .1477 or 14.77% Diff: 3 Topic: 10.3 Historical Returns of Stocks and Bonds Skill: Analytical 13) Suppose that you want to use the 10 year historical average return on Microsoft to forecast the expected future return on Microsoft. Calculate the 95% confidence interval for your estimate of the expect return. R + R2 + ... + RN Answer: 3.11 Rannual = 1 = = 31.1% 10 N Year End 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Microsoft Realized Return 88.3% 56.4% 114.6% 68.4% -62.8% 52.7% -22.0% 6.9% 9.2% -0.9% (R - R) 57.24% 25.36% 83.53% 37.29% -93.92% 21.66% -53.04% -24.19% -21.92% -32.02% (R - R)2 0.3276925 0.0642878 0.6977065 0.1390502 0.8821468 0.0469291 0.281292 0.058501 0.0480275 0.1025221 Variance = SUM of (R - R)2 / T - 1 = 2.6481554 / 9 = 0.2942395 Standard deviation = Variance = 0.2942395 = 0.5424385 Standard error = Standard Deviation / T = 0.5424385 / 10 = .0542 or 5.42% 95% Confidence Int...
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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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