1. Snacks Inc. has a mean expected return of 15%, with a standard deviation of 2
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Question
1. Snacks Inc. has a mean expected return of 15%, with a standard deviation of 2%. The CFO is going to the bank to discuss a large loan. The banker asks what range of returns, with a 99% confidence level, will contain Snacks true expected returns next year.a. (9%, 21%) b. (13%, 17%) c. (11%, 19%) d. Cannot calculate due to the lack of information
2. Snacks Inc. has a mean expected return of 15%, with a standard deviation of 3%. The CFO is going to the bank to discuss a large loan. The banker asks what range of returns, with a 68% confidence level, will contain Snacks true expected returns next year.
Step by step instructions for each question 1. Snacks Inc. has a mean expected return of 15%, with a standard deviation of 2%. The CFO is going to the bank to discuss a large loan. The banker asks what range of returns, with a 99% confidence level, will contain Snacks true expected returns next year.
a. (9%, 21%) b. (13%, 17%) c. (11%, 19%) d. Cannot calculate due to the lack of information
2. Snacks Inc. has a mean expected return of 15%, with a standard deviation of 3%. The CFO is going to the bank to discuss a large loan. The banker asks what range of returns, with a 68% confidence level, will contain Snacks true expected returns next year.
Step by step instructions for each question
a. (9%, 21%) b. (13%, 17%) c. (11%, 19%) d. Cannot calculate due to the lack of information
a. (9%, 21%) b. (13%, 17%) c. (11%, 19%) d. Cannot calculate due to the lack of information
2. Snacks Inc. has a mean expected return of 15%, with a standard deviation of 3%. The CFO is going to the bank to discuss a large loan. The banker asks what range of returns, with a 68% confidence level, will contain Snacks true expected returns next year.
Step by step instructions for each question
Explanation / Answer
This is based on 68-95-99 rule of statistics.
According to this rule,
68% of data would lie within the range Mean +/- 1 Standard deviation
95% of data would lie within the range Mean +/- 2 Standard deviation
99% of data would lie within the range Mean +/- 3 Standard deviation
Question 1:
99% confidence interval is Mean +/- 3 standard deviation
This means: 15% +/- (3 * 2%) => [15% - 6%] till [15% + 6%] => 9%,21% (Option A)
Question 2:
68% confidence interval is Mean +/- 1 standard deviation
This means: 15% +/- (1 * 2%) => [15% - 2%] till [15% + 2%] => (13%,17%)
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