A stock had annual returns of 3.6 percent, -8.7 percent, 5.6 percent, and 11.1 percent over the past four years. Which one of the following best describes the probability that this stock will produce a return of 20 percent or more in a single year?

Question

Quizplus · Accepted Answer

Average return = (0.036 - 0.087 + 0.056 + 0.111)/4 = 0.0290F1F1F1S1F1F1F10 = F1F1F1S1F1F1F10 [1/(4 - 1)] [(0.036 - 0.029)² + (-0.087 - 0.029)² + (0.056 - 0.029)² + (0.111 - 0.029)²] = 0.0836Upper end of 95 percent range = 0.0290 + (2 F1F1F1S1F1F1F10 0.0836) = 19.62 percentUpper end of 99 percent range = 0.0290 + (3 F1F1F1S1F1F1F10 0.0836) = 27.98 percentA return of 20 percent or more in a single year has between a 1 percent and a 2.5 percent probability of occurring in any one year.

A Stock Had Annual Returns of 3