Question

You observe a portfolio for five years and determine that its average return is 12.6​% and the standard deviation of its returns in 19.4​%. 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.)

A. ​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%.

B. ​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%.

C. ​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%.

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

Lower end of the 95% prediction interval=12.6%-1.96*19.4%=-25.424%

A. ​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%.