A European growth mutual fund specializes in stocks from the British Isles, cont

Question

A European growth mutual fund specializes in stocks from the British Isles, continental Europe and Scandinavia. The fund has over 100 stocks. Let x be a random variable that represents the monthly percentage return for this fund. Based on information from Morningstar (See Problem 19), x has a mean M= 1.4% and standard deviation o=.8%.

A.) Let's consider the monthly return of the stocks in the European growth fund to be a sample from the population of monthly returns of all European stocks. Is it reasonable to assume that x (theaverage monthly return on the 200 stocks in European growth fund) has a distribution that is approximately normal? Explain. Hint: See Problem 19 Part A.

B.) After 9 months, what is the probability that the average monthly percentage retrun x- will be between 1% and 2%? Hint see Theorem 6.1 and the results of part (a).

C.) After 18 months,  what is the probability that the average monthly percentage retrun will be between 1% and 2%?

D.) Compare your answers to parts B and C. Did the probability increase as n (number of months) increased? Why would this happen?

E.) If after 18 months the average monthly percentage return x- is more than 2%, that that tend to shake your confidence in the statement that M= 1.4%? If this happened, do you think the European stock market might be heating up? Explain.

Explanation / Answer

A European growth mutual fund specializes in stocks from the British Isles, cont

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