A hedge fund returns on average 26% per year with a standard deviation of 12%. Using the empirical rule, approximate the probability the fund returns over 50% next year.
A) 0.5%
B) 1%
C) 2.5%
D) 5%

Question

Quizplus · Accepted Answer

The empirical rule states that 95% of data falls within 2 standard deviations. A return of 50% is 2 standard deviations above the mean (26% + 2*12% = 50%). Thus, approximately 2.5% of the data lies beyond 2 standard deviations above the mean.

A Hedge Fund Returns on Average 26% Per Year with a Standard