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madreJ [45]
3 years ago
6

10. The continuously compounded annual return on a stock is normally distributed with a mean of 20% and standard deviation of 30

%. With 95.44% confidence, we should expect its actual return in any particular year to be between which pair of values
Mathematics
1 answer:
ehidna [41]3 years ago
7 0

Answer: We should expect its actual return in any particular year to be between<u> -40%</u> and<u> 80%</u>.

Step-by-step explanation:

Given : The continuously compounded annual return on a stock is normally distributed with a mean 20% and standard deviation of 30%.

From normal z-table, the z-value corresponds to 95.44 confidence is 2.

Therefore , the interval limits for 95.44 confidence level will be :

Lower limit = Mean -2(Standard deviation) = 20% -2(30%)= 20%-60%=-40%

Upper limit =  Mean +2(Standard deviation)=20% +2(30%)= 20%+60%=80%

Hence, we should expect its actual return in any particular year to be between<u> -40%</u> and<u> 80%</u>.

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