Mr. Hugh Warner is a very cautious businessman. His supplier offers trade credit terms of 3/19, net 60. Mr. Warner never takes t
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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>
