Assume that historical
returns and future returns are independently and identically distributed and
drawn from the same distribution. a. Calculate the 95% confidence intervals for
the expected annual return of four different investments included in Tables
10.3 and 10.4 (the dates are inclusive, so the time period spans 83 years).
b. Assume that the values in Tables 10.3 and
10.4 are the true expected return and volatility (i.e., estimated without
error) and that these returns are normally distributed. For each investment, calculate the
probability that an investor will not lose more than 5% in the next
year? (Hint: you can use the function normdist(x,mean,volatility,1) in Excel to
compute the probability that a normally distributed variable with a given
mean and volatility will fall belowx. c. Do all the probabilities you calculated in
part (b) make sense? If so,
explain. If not, can you identify the
reason?
Travelling Experience
Can you remember your best experince in another country? Last summer (in 2007), I traveled to the United States for working and spending some time with my friends. I stayed two months in that country. I decided to travel because I wanted to do something different. I was bored about all my daily activities, so […]
