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

question 3

Multiple Choice

The average annual return over the period 1886-2006 for stocks that comprise the S&P 500 is 12%,and the standard deviation of returns is 20%.Based on these numbers,what is a 95% confidence interval for 2007 returns?

• A)-28%,52%
• B)-10%,40%
• C)-20%,35%
• D)-15%,35%
• E)-5%,25%

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Definitions:

Ordinary Perpetuity

A series of indefinite cash flows that occur at regular intervals.

Ordinary Annuity

A financial product where payments of a fixed amount are received at the end of equal intervals.

Nominal GNP

Gross National Product measured in current prices, without adjusting for inflation.

Fair Market Value

Fair Market Value is the price at which an asset would trade in a competitive auction setting, reflecting the amount a willing buyer would pay to a willing seller.