Consider the following table for the total annual returns for a given period of
ID: 2794364 • Letter: C
Question
Consider the following table for the total annual returns for a given period of time. Series Average return Standard Deviation Large-company stocks 12.4 % 20.7 % Small-company stocks 16.4 33.0 Long-term corporate bonds 6.2 8.4 Long-term government bonds 6.1 9.4 Intermediate-term government bonds 5.6 5.7 U.S. Treasury bills 3.8 3.1 Inflation 3.1 4.2 Requirement 1: What range of returns would you expect to see 95 percent of the time for large-company stocks? (Do not include the percent signs (%). Negative amount should be indicated by a minus sign. Input your answers from lowest to highest to receive cr
Explanation / Answer
Average Return of large stock = 12.40%
Standard deviation = 20.70%.
With 95% confidence interval, range of return is calculated below:
Z value at 95% confidence interval is 2.
Expected return = 12.40% ± (2 × 20.70%)
= 12.40% ± 41.40%
= 12.40% + 41.40%, 12.40% - 41.40%
= 53.80%, -29.00%
Hence, range of expected return will be between -29.00% to 53.80%.