Page 49 - FINAL CFA I SLIDES JUNE 2019 DAY 3
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LOS 10.k: Determine the probability that a normally Session Unit 3:
distributed random variable lies inside a given
interval, p.225 10. Common Probability Distributions
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.
