CFA Level I · CFA Level I Exam · Estimation and Hypothesis Testing
A population of monthly returns has a standard deviation of 6.0%. An analyst takes a random sample of 36 monthly returns. The standard error of the sample mean is closest to:
The standard error is 1.00%. It equals the population standard deviation of 6.0% divided by the square root of the sample size of 36, which is 6, giving 1.00%. Dividing by 36 rather than its square root would wrongly give 0.17%.
- A0.17%
- B1.00%Correct
- C6.00%
Explanation
Standard error = σ/√n = 6.0%/√36 = 6.0%/6 = 1.00%. The 0.17% figure results from dividing 6.0% by 36 instead of by its square root, whereas 6.00% ignores the sample size.
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