The Average Annual Return Over the Period 1886-2006 for Stocks

question 24

Multiple Choice

The average annual return over the period 1886-2006 for stocks that comprise the S&P 500 is 10.5%,and the standard deviation of returns is 18.5%.Based on these numbers what is a 95% confidence interval for 2007 returns?

• A)-18.5%,18.5%
• B)-10%,10%
• C)-26.5%,47.5%
• D)-37%,37%

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Definitions:

Sampling Distribution

The probability distribution of a given statistic based on many random samples from a specific population.

Normal Distribution

A bell-shaped curve that describes the spread of a characteristic throughout a population; it is symmetric and depicts that data near the mean are more frequent in occurrence.

Null Hypothesis

The hypothesis that there is no significant difference or effect, often denoted H0, in statistical hypothesis testing.

Mean MPG

The average miles per gallon achieved by a vehicle, calculated by summing the miles per gallon for all vehicles in the sample and dividing by the number of vehicles.