Chapter_10_sol_students

# Calculatethe95confidenceintervalforyourestimateoftheex

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Unformatted text preview: annual return is for the year 2005. Answer: Date Price (\$) Dividend (\$) Return (1 + return) December 31, 2004 \$40.06 0.00% 1 1 January 26, 2005 \$36.80 \$0.50 -6.89% 0.931103 0.931103 April 28, 2005 \$30.41 \$0.50 -16.01% 0.839946 0.782076 July 29, 2005 \$34.86 \$0.50 16.28% 1.162775 0.909379 October 28, 2005 \$25.86 \$0.50 -24.38% 0.756168 0.687643 December 30, 2005 \$18.86 -27.07% 0.729312 0.501506 The Product of (1 + returns) - 1 = -0.49849 The last column in the table contains the cummulative product of (1 + returns) Diff: 3 Topic: 10.3 Historical Returns of Stocks and Bonds Skill: Analytical Use the table for the question(s) below. Consider the following realized annual returns: Market Microsoft Realized Realized Year End Return Return 1996 21.2% 88.3% 1997 30.3% 56.4% 1998 22.3% 114.6% 1999 25.3% 68.4% 2000 -11.0% -62.8% 2001 -11.3% 52.7% 2002 -20.8% -22.0% 2003 33.1% 6.9% 2004 13.0% 9.2% 2005 7.3% -0.9% WS2) Suppose that you want to use the 10 year historical average return on the Market to forecast the expected future return on the S&P 500. Calculate the 95% confidence interval for your estimate of the expect return. R + R2 + ... + RN 1.093 Answer: Rannual = 1 = = 10.93% 10 N Market Realized Year End Return (R - R) (R - R)2 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 21.2% 30.3% 22.3% 25.3% -11.0% -11.3% -20.8% 33.1% 13.0% 7.3% 10.23% 19.40% 11.35%...
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