Question

In: Finance

The historical average return for Puella Stock is 8.3%. Thehistorical standard deviation is 17.2%. Based...

The historical average return for Puella Stock is 8.3%. The historical standard deviation is 17.2%. Based on those numbers answer the following Puella Stock:

a. About one in six years, your return should fall inside the range of ____% to ____%

b. About one in twenty years, your return should fall outside the range of ____% to ____%

c. About one in two hundred years, your return should be greater than ____%

Expert Solution

AVERAGE RETURN = 8.3%

STANDARD DEVIATION = 17.2%

MEAN	8.3
YEARS	STANDARD DEVIATION	EFFECTIVE STD DEV RATE	MEAN x EFFECTIVE STD DEV	LOWER BAND	UPPER BAND
6	17.2%	1.032	8.5656	-0.2656	16.8656
20	17.2%	3.44	28.552	-20.252	36.852
100	17.2%	17.2	142.76	-134.46	151.06

a)

RANGE = 8.3% + 6 x 17.2% = -0.2656% to 16.8656%

About one in six years, your return should fall inside the range of -0.2656% to 16.8656%

b)

RANGE = 8.3% + 20 x 17.2% = -20.252% to 36.852%

About one in six years, your return should fall inside the range of -20.252% to 36.852%

c)

RANGE = 8.3% + 100 x 17.2% = -134.46% to 151.06%

About one in six years, your return should fall inside the range of -134.46% to 151.06%

jeff jeffy answered 2 years ago

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