Niles is making an investment with an expected return of 12 percent. If the standard deviation of the return is 4.5 percent, and if Niles is investing $100,000, then what dollar amount is Niles 90 percent sure that he will have at the end of the year? (Do not round intermediate computations).
A) $100,000.00
B) $104,597.50
C) $116,500.00
D) $119,402.50

Question

Quizplus · Accepted Answer

Using the formula for a confidence interval around the expected return, we calculate the lower bound of the 90% confidence interval. The Z-score for 90% confidence is approximately 1.645. The formula for the lower bound is: Expected Return - (Z-score * Standard Deviation). In this case, it's 12% - (1.645 * 4.5%), which equals 4.5975%. Applying this to the investment, $100,000 * (1 + 0.045975) = $104,597.50.

Niles Is Making an Investment with an Expected Return of 12