Returns on stocks. Andrew plans to retire in 40 years. He is thinking of 4STEPinvesting

Chapter 0, Problem 11.40

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Returns on stocks. Andrew plans to retire in 40 years. He is thinking of 4STEPinvesting his retirement funds in stocks, so he seeks out information on pastreturns. He learns that over the 101 years from 1900 to 2000, the real (that is,adjusted for inflation) returns on U.S. common stocks had mean 8.7% andstandard deviation 20.2%.4 The distribution of annual returns on common stocksis roughly symmetric, so the mean return over even a moderate number of years isclose to Normal. What is the probability (assuming that the past pattern ofvariation continues) that the mean annual return on common stocks over thenext 40 years will exceed 10%? What is the probability that the mean return willbe less than 5%? Follow the four-step process in your answer.