Chapter_10_sol_students

Calculatethe95confidenceintervalforyourestimateoftheex

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

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%...
View Full Document

Ask a homework question - tutors are online