Suppose You Are Told That the Average Return on Investment

question 36

Multiple Choice

Suppose you are told that the average return on investment for a particular class of investments was 7.8% with a standard deviation of 2.3.Furthermore,the histogram of the distribution of returns is approximately bell-shaped.We would expect that 95 percent of all of these investments had a return between what two values?

• A)5)5% and 10.1%
• B)0% and 15%
• C)3)2% and 12.4%
• D)0)9% and 14.7%

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Definitions:

Annual Fixed Costs

The total fixed costs a company incurs over a year, which do not vary with the level of production or sales.

Return on Investment

A measure of the profitability and efficiency of an investment, calculated by dividing net profits by the cost of the investment.

Residual Income

Profit remaining after deducting all costs, including the cost of capital, usually used in managerial accounting as a performance measure.

Minimum Required Rate of Return

The lowest rate of return that a potential investment must offer to be considered acceptable, taking into account the investor's cost of capital and risk appetite.