Working through a Schweser mock, and I can’t figure out how this answer is correct…
An investment has a mean return of 15% and a standard deviation of returns equal to 10%. If the distribution of returns is approximately normal, which of the following statements is least accurate? The probability of obtaining a return:
A) less than 5% is about 16%.
B) greater than 35% is about 2.5%.
C) between 5% and 25% is about 95%.
Answer C - About 68% of all observations fall within ±1 standard deviation of the mean. Thus, about 68% of the values fall between 5 and 25.
I don’t get it. I went with A, as if the standard deviation is 10%, one down from 15% is 5%, and one up from there is 25%. If 68% will fall within 1sd, then that means 32% will be either below 5% or above 25%, therefore less than 5% is 16%.
I’ve not been firing on all cyclinders today so I’m assuming I’m just missing something obvious, but I don’t get how they come up with the answer C.