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blondinia [14]
3 years ago
9

You are choosing between these four investments and you want to be​ 95% certain that you do not lose more than 8.00% on your inv

estment. Which investments could you​ choose?

Business
1 answer:
borishaifa [10]3 years ago
5 0

Answer: B. Corporate Bonds and T-Bills

Explanation:

As you want to be 95% certain, this would require a 95% confidence interval.

With the given returns and standard deviations, the range of returns expected will be computed by;

Upper limit = Return + 2*SD

Lower limit  Return - 2*SD

Stocks

Upper Limit = 18.37% + 2 (38.79%)

= 96.0%

Lower Limit = 18.37% - 2 (38.79%)

= -59.2%

S&P 500

Upper Limit = 11.84% + 2(20.01%)

= 51.9%

Lower Limit =  11.84% - 2(20.01%)

= -28.2%

Corporate Bonds

Upper Limit = 6.47% + 2(6.98%)

= 20.4%

Lower Limit = 6.47% - 2(6.98%)

= -7.5%

T-Bills

Upper Limit = 3.46% + 2(3.14%)

= 9.7%

Lower Limit = 3.46% - 2(3.14%)

= -2.8%

The lower limit show the lowest return achievable given a 95% confidence level.

<em>Only </em><em>Corporate Bonds</em><em> and </em><em>T-Bills</em><em> will give a minimum that is above 8% so they should be chosen. </em>

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