Use the regression estimated in question 40 to forecast the return for the gold mutual fund in 1989 and 1990. Assume that the best forecast for the return of the S&P 500 in 1989 and 1990 is the mean of the S&P 500’s returns for the previous 5 years. Construct a 99 % confidence interval for both of these forecasts.

Question 40

Investment advisors sometimes recommend holding gold as part of an investor’s portfolio, because the value of gold appears to be negatively related to that of the stock market. Thus, when the stock market goes down in value, the value of gold goes up in value, and some of the investor’s losses in the market are offset by gains in the value of her or his gold. The accompanying table shows data on annual rates of return for a gold mutual fund and for the S&P 500.