Question

Andrew plans to retire in 40 years. He plans to invest part of his retirement funds in stocks, so he seeks out information on past returns. He learns that from 1966 to 2015, the annual returns on the S&P 500 had mean of 11.0% and standard deviation 17.0%. The distribution of annual returns on common stocks is roughly symmetric, so the mean return over even a moderate number of years is close to to Normal. 2a) What is the probability (assuming that the past pattern of variation continues) that the mean annual return on common stocks over the next 40 years will exceed 10%? (10 marks) 2b) What is the probability that the mean return will be less than 5%? Follow the four step process. (10 marks)

          Andrew plans to retire in 40 years. He plans to invest part of
his retirement funds in stocks, so he seeks out information on past
returns. He learns that from 1966 to 2015, the annual returns on
the S&P 500 had mean of 11.0% and standard deviation 17.0%. The
distribution of annual returns on common stocks is roughly
symmetric, so the mean return over even a moderate number of years
is close to to Normal. 2a) What is the probability (assuming that
the past pattern of variation continues) that the mean annual
return on common stocks over the next 40 years will exceed 10%? (10
marks) 2b) What is the probability that the mean return will be
less than 5%? Follow the four step process. (10 marks)

Added by Oscar M.

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