Question

Given the probability of 99%, the stock return range should be around its mean. (Suppose this stock returns follow the normal distribution) Question 3 options:

A) 1 SD
B) C)SDs
C) None of these
D) 2 SDs

Answer 1

For a normal distribution, a 99% probability range for stock returns around the mean would correspond to approximately 3 standard deviations according to the Empirical Rule.

Step-by-step explanation:

According to the empirical rule for a bell-shaped distribution, approximately 95 percent of the stock returns will be within two standard deviations of the mean. The question is asking to identify how many standard deviations (SDs) from the mean would correspond to a 99% probability range for stock returns, assuming a normal distribution. According to the Empirical Rule, approximately 68% of the data falls within 1 SD of the mean, about 95% within 2 SDs, and more than 99% within 3 SDs. Therefore, the answer to the question would be Option C) 3 SDs to represent the range where approximately 99% of stock returns would fall given a normal distribution.