You observe a portfolio for five year and determine that its average return is 1

Question

You observe a portfolio for five year and determine that its average return is 1 1.1% and the standard deviation of its returns in 19.1%. Can you be 95% confident that this portfolio will not lose more than 30% of its value next year? %. (Enter your response as a percent Since the low end of the 95% prediction interval is rounded to one decimal place.) o A. Yes, you can be confident that the portfolio will not lose more than 30% of its value O B. No, you cannot be confident that the portfolio will not lose more than 30% of its value ° C. No, you cannot be confident that the portfolio will not lose more than 30% of its value 0 D. Yes, you can be confident that the portfolio will not lose more than 30% of its value next year. This is because the low end of the prediction interval is greater than-30%. next year. This is because the low end of the prediction interval is less than-30%. next year. This is because the low end of the prediction interval is greater than-30%. next year. This is because the low end of the prediction interval is less than-30%.

Explanation / Answer

z-score for 95% confidence = 1.96

Low end for 95% prediction interval = Avg Return - z-score x SD = 11.1% - 1.96 x 19.1% = -26.3%

Statement A is correct. As the low end of prediction interval is -26.3% > -30%.

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