An analyst samples random stocks from the market using the simple random sampling method. The first stock sampled returned 10% in 2012, and the mean 2012 return of the analyst’s entire sampled portfolio is 14%. If the market return in 2012 was 16%, the absolute value of the analyst’s sampling error is closest to:
The sampling error is the difference between the observed
value and the value it was intended to represent. In this case, the observed
value was the mean return, or 14%. The actual mean return was 16%, so the
sampling error was 2%.