Question

An investment is expected to generate an average return of 10% with standard deviation of 5%. With 95% confidence level, the actual rate of return will fall between:

A. 0% to 20%.

B. 5% to 15%.

C. -10% to 30%.

D. -5% to 25%.

Answer 1

Using the concept of Z Score,

$Z=\frac{X-\mu }{\sigma }$

At 95% confidence level , Z= 1.96 ,

1.95996 = (X-0.10)/).05

=> X= 19.9 % = 20%

Return will fall between : 0% to 20%.

Option A.