The average annual return over the period 1886-2006 for stocks that comprise the S&P 500 is 12%,and the standard deviation of returns is 20%.Based on these numbers,what is a 95% confidence interval for 2007 returns?
A)-28%,52%
B)-10%,40%
C)-20%,35%
D)-15%,35%
E)-5%,25%

Question

Quizplus · Accepted Answer

Using the formula for a 95% confidence interval, which is the mean ± 1.96 * standard deviation, we calculate: 12% ± 1.96 * 20% = 12% ± 39.2%, which gives us a range of -27.2% to 51.2%. This range is closest to the option A) -28%, 52%.

The Average Annual Return Over the Period 1886-2006 for Stocks