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20 January, 13:27

The Ishares Bond Index fund (TLT) has a mean (average) and annual standard deviation of realized returns of 6% and 10%, respectively. If these are unbiased estimators of expected returns and future volatility, answer the following. (Round your answers to the nearest integer.)

(a) What is the 68% confidence interval for the returns on TLT next year (as a percent) ? %to %

(b) What is the 95% confidence interval for the returns on TLT next year (as a percent) ?

(c) What is the 99.7% confidence interval for the returns on TLT next year (as a percent) ? % to %

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  1. 20 January, 13:50
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    (A). Law of 68 per cent

    range = mean + / - 1 (standard deviation)

    = 9 + / - 1 (10)

    = 9 - 1 (10) to 9 + 1 (10)

    = - 1 to 19

    (B). Law of 95 per cent

    range = mean + / - 1.96 (standard deviation)

    = 9 + / - 1.96 (10)

    = 9 - 1.96 (10) to 9 + 1.96 (10)

    = - 10.6 to 28.6

    (C). Law of 99 per cent

    range = mean + / - 3 (standard deviation)

    =9 + / - 310 ()

    =9 - 3 (10) to 9 + 3 (10)

    = - 21 to 39
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