ires 91 in Chapter on stocks. Andrew plans to retire in 40 years. He plans to invest part of his retirement funds in stocks, so he seeks out intormation on past returns. He learns that from 1966 to 2015, the annual returns on the S&P 500 had mean 11.0% and standard deviation 17.0%.$ The distribution of annual returns on common stocks is roughly symmetric, so the mean return over

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### Returns on Stocks

Andrew plans to retire in 40 years. He intends to invest part of his retirement funds in stocks, so he seeks out information on past returns. He learns that from 1966 to 2015, the annual returns on the S&P 500 had a mean of 11.0% and a standard deviation of 17.0%. The distribution of annual returns on common stocks is roughly symmetric, so the mean return over time provides a reliable estimate. 

This historical data helps investors like Andrew understand potential stock market performance, balancing risk and return when planning long-term investments.
Transcribed Image Text:### Returns on Stocks Andrew plans to retire in 40 years. He intends to invest part of his retirement funds in stocks, so he seeks out information on past returns. He learns that from 1966 to 2015, the annual returns on the S&P 500 had a mean of 11.0% and a standard deviation of 17.0%. The distribution of annual returns on common stocks is roughly symmetric, so the mean return over time provides a reliable estimate. This historical data helps investors like Andrew understand potential stock market performance, balancing risk and return when planning long-term investments.
**Exercise: Probability of Mean Annual Returns**

**Page 373**

Consider that even a moderate number of years is close to Normal distribution. 

1. What is the probability (assuming that the past pattern of variation continues) that the mean annual return on common stocks over the next 40 years will exceed 10%?
   
2. What is the probability that the mean return will be less than 5%? 

Follow the four-step process as illustrated in Example 15.8.
Transcribed Image Text:**Exercise: Probability of Mean Annual Returns** **Page 373** Consider that even a moderate number of years is close to Normal distribution. 1. What is the probability (assuming that the past pattern of variation continues) that the mean annual return on common stocks over the next 40 years will exceed 10%? 2. What is the probability that the mean return will be less than 5%? Follow the four-step process as illustrated in Example 15.8.
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