Question Part Points Submissions Used Andrew plans to retire in 40 years. He is

Question

Question Part Points Submissions Used Andrew plans to retire in 40 years. He is thinking of investing his retirement funds in stocks, so he seeks out information on past returns. He learns that over the 101 years from 1900 to 2000, the real (that is, adjusted for inflation) returns on U.S. common stocks had mean 8.7% and standard deviation 20.2%. The distribution of annual returns on common stocks is roughly symmetric. What sample mean annual return (sample mean for the next 40 years before Andrew retires) would be higher than 80% of all sample mean annual returns?

Explanation / Answer

Here the researcher needs to calculate the 80th percentile.

The z score which corresponds to the nearest probability of 0.80 (or 0.7995) is: 0.84

Thus the required raw score X=+z

=20.2+0.84*20.2

=37.168

Thus, the sample mean annual return (sample mean for the next 40 years before Andrew retires) is 37.168% which would be higher than 80% of all sample mean annual returns.

Related Questions

Navigate

• Browse (All)
• Browse Q
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.