SCENARIO 6-5 According to Investment Digest, the Arithmetic Mean of the Annual

question 26

Short Answer

SCENARIO 6-5
According to Investment Digest, the arithmetic mean of the annual return for common stocks over an
85-year period was 9.5% but the value of the variance was not mentioned. Also 25% of the annual
returns were below 8% while 65% of the annual returns were between 8% and 11.5%. The article
claimed that the distribution of annual return for common stocks was bell-shaped and approximately
symmetric. Assume that this distribution is normal with the mean given above. Answer the following
questions without the help of a calculator, statistical software or statistical table.
-Referring to Scenario 6-5, find the two values that will bound the middle 80% of the annual
returns?

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Definitions:

Capital Expenditure

Long-term investments or expenditures made by a company to acquire or upgrade physical assets such as equipment, property, or industrial buildings.

Net Income

The amount of profit left over after all expenses and taxes have been subtracted from total revenue.

Depreciation Expense

The allocated portion of the total cost of a company's tangible assets that is charged to expense across the asset's useful life.