Fundamentals of Statistics (5th Edition)
5th Edition
ISBN: 9780134508306
Author: Michael Sullivan III
Publisher: PEARSON
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Chapter B.2, Problem 16AYU
Investment Risk Investors not only desire a high return on their money, but they would also like the rate of return to be stable from year to year. An investment manager invests with the goal of reducing volatility (year-to-year fluctuations in the rate of return). The following data represent the rate of return (in percent) for his mutual fund for the past 12 years.
- (a) Verify that the data are
normally distributed by constructing a normalprobability plot. - (b) Determine the sample standard deviation.
- (c) Construct a 95% confidence interval for the population standard deviation of the rate of return.
- (d) The investment manager wants to have a population standard deviation for the rate of return below 6%. Does the confidence interval validate this desire?
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The table below shows the annual return of an investor over a 5 year period.
2017 2018 2019
Year
Return 15%
18%
2020
20% -2%
2021
3%
Calculate the mean and standard deviation of return.
Hi! I was working on the question below:
The Capital Asset Pricing Model (CAPM) is a financial model that assumes returns on a portfolio are normally distributed. Suppose a portfolio has an average annual return of 14.7% (i.e. an average gain of 14.7%) with a standard deviation of 33%. A return of 0% means the value of the portfolio doesn’t change, a negative return means that the portfolio loses money, and a positive return means that the portfolio gains money.
And question (a) looks like:
What percent of years does this portfolio lose money, i.e. have a return less than 0%?
I got a z-score of -0.4455, which corresponds to the p value of 0.3264 on the z-table; I don't understand why the correct answer should be 0.3280 as said by one of the solutions, and I cannot locate such a number on the z-table.
Thank you so much!
None
Chapter B.2 Solutions
Fundamentals of Statistics (5th Edition)
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