Question

You are choosing between these four investments and you want to be​ 95% certain that you do not lose more than 8.00 % on your investment. Which investments could you​ choose?

Small Stocks ​ S&P 500 Corporate Bonds ​ T-Bills
Average return ​18.37% ​ 11.84% ​6.47% ​3.46%
Standard Deviation ​38.79% ​20.01% ​ 6.98% ​ 3.14%
of returns
​(Select the best choice​ below.)

Which of the following have the lower bound of the estimated range greater than
18.00 %​?
A. All of the Investments
B. T-Bills only
C. Long-term Government of Canada Bonds and​ T-Bills
D. S&P TSX and​ S&P 500 in CAD
E. Long-term Government of Canada Bonds and​ S&P 500 in CAD

Answer 1

option B

Step-by-step explanation:

In other to know how return fluctuation can be predicted with for instance, x%, predictability, one has to look at the normal distribution curve of return (average returns) to standard deviation of those returns. (check the attached file for additional details).

Hence, to be 95% sure that investment losses are less than 8% one needs to look at 95% of all returns which infact Mean return plos or minus 20. If the lower bound of this interval is less than 8% then the investment needs to be selected

check attached file for additional details