Dr. Jayanthi Sankaran
Well-Known Member
70.3 Assume the population of a hedge fund returns has an unknown distribution with mean of 8% and volatility of 10%. From a sample of 40 funds, what is the probability the sample mean return will exceed 10%?
(a) 10.0%
(b) 10.3%
(c) 10.7%
(d) 11.1%
Answer is (b) 10.3%
The Z statistic turns out to be 1.2658 ~ 1.27 such that Probability (Z >= 1.27) = 0.5 - 0.3980 = 10.2%. However, you have rounded the Z statistic to 1.26 instead, as a result of which Prob (Z>=1.26) = 0.5 - 0.3962 = 10.38% ~ 10.4%
Although, by itself, it is trivial, for examination purposes, how would one decide between answers (a) 10% and
(b) 10.3%
Thanks!
Jayanthi
(a) 10.0%
(b) 10.3%
(c) 10.7%
(d) 11.1%
Answer is (b) 10.3%
The Z statistic turns out to be 1.2658 ~ 1.27 such that Probability (Z >= 1.27) = 0.5 - 0.3980 = 10.2%. However, you have rounded the Z statistic to 1.26 instead, as a result of which Prob (Z>=1.26) = 0.5 - 0.3962 = 10.38% ~ 10.4%
Although, by itself, it is trivial, for examination purposes, how would one decide between answers (a) 10% and
(b) 10.3%
Thanks!
Jayanthi