Question

You are an investment manager for a hedge fund. There are currently a lot of rumours going around about the “hot” property market on the Gold Coast, and some of your investors want you to set up a fund specialising in Surfers Paradise apartments. Last Saturday you attended an auction to get “a feel” for the local real estate market. You decide it might be worth further investigating. You ask one of your interns to take a quick sample of 50 properties that have been sold during the last few months. Your previous research indicated an average price of $0.9 million but the average price of your assistant’s sample was only $850 000. However, the standard deviation for her research was the same as yours at $270 000.

Find B. You have over 2 000 investors in your fund. You and your assistant phone 35 of them to ask if they are willing to invest more than $1 million (each) to the proposed new fund. Only 9 say that they would, but you need at least 30% of your investors to participate to make the fund profitable. Based on your sample of 35 investors, what is the probability that 30% of the investors would be willing to commit $1 million or more to the fund?

Answer 1