Question 8.21

21. Annual returns on the more than 5000 common stocks available to investors vary a lot. In a recent year, the mean return was 8.3% and the standard deviation of returns was 28.5%. The law of large numbers says that

  1. you can get an average return higher than the mean 8.3% by investing in a large number of stocks.
  2. as you invest in more and more stocks chosen at random, your average return on these stocks gets ever closer to 8.3%.
  3. if you invest in a large number of stocks chosen at random, your average return will have approximately a normal distribution.

21.

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