You are considering investing in a share of ASX Ltd and you know that the share returns tend to be normally distributed, and you have calculated the expected return on the share to be 10% and the standard deviation to be around 15%. Based on those statistics, within what range would you expect the return on this share to fall during next year (calculate the range at 99% level of confidence).
A) - 28.625% and 10%.
B) - 28.625% and 48.625%.
C) 10% and 38.625%.
D) 10% and 48.625%.

Question

Quizplus · Accepted Answer

At 99% level of confidence, number of deviations from the mean is 2.575. Multiplying the value by the standard deviation of 15% gives you 38.625%. So the range of return will be in between -28.625% (10%- 38.625%) and 48.625% (10%+38.625%) at 99 per cent level of confidence.

You Are Considering Investing in a Share of ASX Ltd