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

question 156

Short Answer

TABLE 6-6
According to Investment Digest, the arithmetic mean of the annual return for common stocks from 1926-2010 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 Table 6-6, find the probability that the annual return of a random year will be more than 11.5%.

---

Definitions:

Socially Optimal

A state or outcome in which resource allocation maximizes social welfare, considering all costs and benefits to society.

Market Price

The current price at which an asset or service can be bought or sold, determined by supply and demand.

Emissions Standard

Legal limit on the amount of pollutants that a firm can emit.

Marginal External Cost

The additional cost incurred by society due to one more unit of a good or service being produced, that is not accounted for by the producer.