Question

Homework help!!

You observe a portfolio for five years and determine that its average return is 12.5% and the standard deviation of its returns in 19.6%. Would a 30% loss next year be outside the 95% confidence interval for this portfolio? The low end of the 95% prediction interval is %. (Enter your response as a percent rounded to one decimal place.) O A. No, you cannot 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 less than -30% OB. 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 less than -30% OC. 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% O D . No, you cannot 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%

Answer 1

At 95%: Low end of 95% prediction interval is Low end of 95% prediction interval is Mean-[2xStandard deviations] -26.70% =12.5%-2*19.6% Hence, correct option is B.

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