A Hedge Fund Returns on Average 26% Per Year with a Standard

question 62

Multiple Choice

A hedge fund returns on average 26% per year with a standard deviation of 12%. Using the empirical rule, approximate the probability the fund returns over 50% next year.

• A) 0.5%
• B) 1%
• C) 2.5%
• D) 5%

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Definitions:

Economic Income

The sum of a company's net cash flow and the change in present value of a company's cash flows in a given period.

ROA

Return on Assets, a financial ratio indicating the profitability of a company relative to its total assets.

Capital Structure

The mix of a company's long-term debt, specific short-term debt, common equity, and preferred equity, which is used to finance its overall operations and growth.

ROE

Return on Equity, measures a corporation's profitability by revealing how much profit a company generates with the money shareholders have invested.