Page 81 - FINAL CFA SLIDES DECEMBER 2018 DAY 3
P. 81
LOS 10.k: Determine the probability that a Session Unit 3:
normally distributed random variable lies 10. Common Probability Distributions
inside a given interval, p.225
Example: The average return of a mutual fund is 10.5% per year and the standard deviation
of annual returns is 18%. If returns are approximately normal, what is the 95% confidence
interval for the mutual fund return next year?
Answer:
Here µ and σ are 10.5% and 18%, respectively.
Thus, the 95% CI for the return, R, is:10.5 ± 1.96(18) = –24.78% to 45.78%
Interpretation?
The annual return is expected to be within this interval 95% of the time, or 95 out of 100
years.
