Respuesta :
Answer:
a) 24.82% probability that the mean annual return on common stocks over the next 36 years will exceed 11%
b) 13.57% probability that the mean return will be less than 5%
Step-by-step explanation:
To solve this question, we need to understand the normal probability distribution and the central limit theorem.
Normal probability distribution
When the distribution is normal, we use the z-score formula.
In a set with mean [tex]\mu[/tex] and standard deviation [tex]\sigma[/tex], the zscore of a measure X is given by:
[tex]Z = \frac{X - \mu}{\sigma}[/tex]
The Z-score measures how many standard deviations the measure is from the mean. After finding the Z-score, we look at the z-score table and find the p-value associated with this z-score. This p-value is the probability that the value of the measure is smaller than X, that is, the percentile of X. Subtracting 1 by the pvalue, we get the probability that the value of the measure is greater than X.
Central Limit Theorem
The Central Limit Theorem estabilishes that, for a normally distributed random variable X, with mean [tex]\mu[/tex] and standard deviation [tex]\sigma[/tex], the sampling distribution of the sample means with size n can be approximated to a normal distribution with mean [tex]\mu[/tex] and standard deviation [tex]s = \frac{\sigma}{\sqrt{n}}[/tex].
For a skewed variable, the Central Limit Theorem can also be applied, as long as n is at least 30.
In this question:
[tex]\mu = 8.7, \sigma = 20.2, n = 36, s = \frac{20.2}{\sqrt{36}} = 3.3667[/tex]
(a) What is the probability (assuming that the past pattern of variation continues) that the mean annual return on common stocks over the next 36 years will exceed 11%?
This is 1 subtracted by the pvalue of Z when X = 11.
[tex]Z = \frac{X - \mu}{\sigma}[/tex]
By the Central Limit Theorem
[tex]Z = \frac{X - \mu}{s}[/tex]
[tex]Z = \frac{11 - 8.7}{3.3667}[/tex]
[tex]Z = 0.68[/tex]
[tex]Z = 0.68[/tex] has a pvalue of 0.7518
1 - 0.7518 = 0.2482
24.82% probability that the mean annual return on common stocks over the next 36 years will exceed 11%
(b) What is the probability that the mean return will be less than 5%?
This is the pvalue of Z when X = 5.
[tex]Z = \frac{X - \mu}{s}[/tex]
[tex]Z = \frac{5 - 8.7}{3.3667}[/tex]
[tex]Z = -1.1[/tex]
[tex]Z = -1.1[/tex] has a pvalue of 0.1357
13.57% probability that the mean return will be less than 5%
