Question

What range of returns should you expect to see with a 99 percent probability for the riskiest asset in this group?: Large company stocks have an average return of 9.1 percent and a standard deviation of 18.7 percent; small company stocks have an average return of 10.85 percent and a standard deviation of 24.64 percent; and corporate bonds have an average return of 6.8 percent and a standard deviation of 11.4 percent.

Answer 1

Answer: Range is, -63.07% to 84.77%

Step-by-step explanation:

The range of returns that you can expect to see 99% of the time is calculated by the formula

= Mean+- (3 * standard deviation)

The question asks for the range of returns you should expect to see with a 99 percent probability for the RISKIEST ASSET.

The Riskiest Asset is one with the highest standard deviation which is the Small Company Stock.

Calculating the range therefore is,

Lower limit,

= Mean - (3 * standard deviation)

= 10.85% - (3 * 24.64%)

= -63.07%

Upper limit

= Mean + (3 * standard deviation)

= 10.85% - (3 * 24.64%)

= 84.77%

Range is, -63.07% to 84.77%