(15.19) Annual returns on common small stocks available to investors vary a lot.
ID: 3160613 • Letter: #
Question
(15.19) Annual returns on common small stocks available to investors vary a lot. In a recent year, the mean return was 11.7% and the standard deviation of returns was 34.1%. The law of large numbers says that
a. if you invest in a large number of stocks chosen at random, your average return will have approximately a Normal distribution. b. as you invest in more and more stocks chosen at random, your average return on these stocks gets ever closer to 11.7%. c. you can get an average return higher than the mean 11.7% by investing in a large number of stocks.Explanation / Answer
Annual returns on common small stocks available to investors vary a lot. In a recent year, the mean return was 11.7% and the standard deviation of returns was 34.1%. The law of large numbers says that
"b. as you invest in more and more stocks chosen at random, your average return on these stocks gets ever closer to 11.7%."
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.