The stocks have the higher median rate of return. (b) Compute the standard deviation for each industry. In finance, the standard deviation rate of return is called risk. Which sector is riskier? Sample standard deviation for financial stocks s = (Type an integer or decimal rounded to three decimal places as needed.) Sample standard deviation for energy stocks s = (Type an integer or decimal rounded to three decimal places as needed.) The stocks are riskier. energy financial
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Returns on common stocks The return on a stock is the change in its market price plus any dividend payments made. Total return is usually expressed as a percent of the beginning price. The figure below shows a histogram of the distribution of the monthly returns for all common stocks listed on U.S. markets from January 1985 to September 2007 (273 months).28 The extreme low outlier represents the market crash of October 1987, when stocks lost 23% of their value in one month. (a) Ignoring the outliers, describe the overall shape of the distribution of monthly returns. (b) What is the approximate center of this distribution? (c) Approximately what were the smallest and largest monthly returns, leaving out the outliers? (d) A return less than zero means that stocks lost value in that month. About what percent of all months had returns less than zero?
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To analyze the risk, or volatility, associated with investing in General Electric common stock, consider a sample of the eight quarterly percent total returns. The percent total return includes the stock price change plus the dividend payment for the quarter. $$ \begin{array}{lllllll} 20.0 & -20.5 & 12.2 & 12.6 & 10.5 & -5.8 & -18.7 & 15.3 \end{array} $$ a. What is the value of the sample mean? What is its interpretation? b. Compute the sample variance and sample standard deviation as measures of volatility for the quarterly return for General Electric. c. Construct a $95 \%$ confidence interval for the population variance. d. Construct a $95 \%$ confidence interval for the population standard deviation.
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