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 ____%

Solutions

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%


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