1) Based on 80 years of data, an investment has a Standard Deviation of 12 and an average return of 20%. What would the returns be 66.6% of the time:
c. Between 12% and 20%
d. Between 8% and 32%
2) Investment A has an annual return of 10% and a standard deviation of 8. Investment B has an annual return of 12% and a standard deviation of 10. If the risk-free rate is 4%, annually, which one is a more efficient investment?
a. Investment A
b. Investment B
c. Equally Efficient
d. Unable to determine
This material may consist of step-by-step explanations on how to solve a problem or examples of proper writing, including the use of citations, references, bibliographies, and formatting. This material is made available for the sole purpose of studying and learning - misuse is strictly forbidden.1) The answer is option D.
Normally distributed returns will fall “just short” of between minus and plus one standard deviation (SD) 66.6% “of the time” because a normal distribution is shaped that way, where the 66.6% (really about 68%) of the returns are close to the mean as in the following picture, where “close” means within one SD from the mean...