Question
Assume that the equity risk premium is normally distributed with a population mean of 6 percent and a population standard deviation of 18 percent. Over
Assume that the equity risk premium is normally distributed with a population mean of 6 percent and a population standard deviation of 18 percent. Over the last four years, equity returns (relative to the risk-free rate) have averaged 2.0 percent. You have a large client who is very upset and claims that results this poor should never occur. Evaluate your clients concerns. A Construct a 95 percent confidence interval around the population mean for a sample of four-year returns. B What is the probability of a 2.0 percent or lower average return over a four-year period?
I just want a check to make sure I did correct
A)6% + and- 1.96 x 18%/square root 4
(-1.12,0.24)
B) -2%-6% / 18% /square root 4= -8%/9% =-0.89
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