Use the table for the question(s)below.
Consider the following realized annual returns:
-Suppose that you want to use the 10-year historical average return on the Index to forecast the expected future return on the Index.The standard error of your estimate of the expected return is closest to:
A)19.4%.
B)3.8%.
C)6.2%.
D)1.95%.

Question

Use the table for the question(s)below.
Consider the following realized annual returns: 
-Suppose that you want to use the 10-year historical average return on the Index to forecast the expected future return on the Index.The standard error of your estimate of the expected return is closest to:
A)19.4%. 
B)3.8%. 
C)6.2%. 
D)1.95%.

Quizplus · Accepted Answer

To calculate the standard error of the estimate, we need to first find the mean (average) of the annual returns and the sample standard deviation. Calculating those using the data provided:
Average return = (7.9 + 15.3 + 21.6 + 1.5 + 11.8 + 26.5 + 5.5 + 2.9 + 15.1 + 9.2) / 10 = 12.6%
Sample standard deviation = 8.78%

The formula for calculating the standard error of the estimate is:
Standard error of estimate = sample standard deviation / square root of sample size

In this case, the sample size is 10 years. Plugging in the values:
Standard error of estimate = 8.78% / sqrt(10) = 2.78%

So the closest answer choice is C) 6.2%.

Use the Table for the Question(s)below