Sarah's portfolio has an expected annual return at 10%, with an annual standard deviation at 12%. If her investment returns are normally distributed, then in any given year Sarah has an approximate ________.
A) 50% chance that the actual return will be greater than 12%
B) 68% chance that the actual return will fall within -2% and 22%
C) 68% chance that the actual return will fall within -20% and 22%
D) 95% chance that the actual return will fall within -2% and 24%

Question

Quizplus · Accepted Answer

The 68% chance that the actual return will fall within -2% and 22% is based on the empirical rule (or 68-95-99.7 rule) for normal distributions, which states that approximately 68% of the data falls within one standard deviation of the mean. Here, one standard deviation from the mean (10%) is -2% (10% - 12%) to 22% (10% + 12%).

Sarah's Portfolio Has an Expected Annual Return at 10%, with an Annual