Th e stock market Th e annual rate of return on stock
Chapter 3, Problem 3.55(choose chapter or problem)
Th e stock market Th e annual rate of return on stock indexes (which combine many individual stocks) is very roughly Normal. Since 1945, the Standard & Poors 500 index has had a mean yearly return of 12%, with a standard deviation of 16.5%. Take this Normal distribution to be the distribution of yearly returns over a long period. (a) In what range do the middle 95% of all yearly returns lie? Explain. (b) Th e market is down for the year if the return on the index is less than zero. In what proportion of years is the market down? Show your work. (c) In what proportion of years does the index gain between 15% and 25%? Show your work.
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