Assume That the Returns from an Asset Are Normally Distributed

question 94

Multiple Choice

Assume that the returns from an asset are normally distributed.The average annual return for the asset is 18.1 percent and the standard deviation of the returns is 32.5 percent.What is the approximate probability that your money will triple in value in a single year?

• A)less than 0.5 percent
• B)less than 1 percent but greater than 0.5 percent
• C)less then 2.5 percent but greater than 1 percent
• D)less than 5 percent but greater than 2.5 percent
• E)less than 10 percent but greater than 5 percent

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Definitions:

Least Squares

A mathematical approach used to approximate the solution of overdetermined systems, minimizing the sum of the squares of the differences between observed and estimated values.

Squared Deviations

The square of the difference between each data point and the mean, used in variance calculation.

Actual y Values

The observed or measured values of the dependent variable in a study or experiment.

Scatter Diagram

A graphical representation of two variables for a set of data, showing the relationship between them by displaying points corresponding to each data pair.