TABLE 6-4 According to Investment Digest, the Arithmetic Mean of the Annual

question 80

Short Answer

TABLE 6-4
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 6-4, find the probability that the annual return of a random year will be less than 11.5%.

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Definitions:

Inferential Statistics

A branch of statistics that allows one to make predictions or inferences about a population based on a sample.

Arithmetic Mean

A measure of central tendency calculated by adding a set of numbers and dividing the sum by the count of those numbers.

Variability

The extent to which data points in a statistical distribution or set differ from each other and from their average.

Descriptive Statistics

Statistical methods that summarize and organize data to describe its main features, often through the use of charts, graphs, and summary measures.