The SMH ETF has annual return of 14% over the last 10 years. The fund has...

The SMH ETF has annual return of 14% over the last 10 years. The fund has volatitlity of 19% during that same period. What is1 the 95% likely range of return for SMH over the next 5 years?

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Expert Solution

The 95% range of return covers two standard deviations

The annual return = 14% = 0.14

Standard deviation = 19% = 0.19

The upper bound = The annual return + 2 * Standard deviation

The upper bound = 0.14 + 2 * 0.19

The upper bound = 0.14 + 0.38

The upper bound = 0.52

The upper bound = 52%

The lower bound = The annual return - 2 * Standard deviation

The lower bound = 0.14 - 2 * 0.19

The lower bound = 0.14 - 0.38

The lower bound = -0.24

The lower bound = -24%

jeff jeffy answered 1 year ago

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