A stock has an annual return of 10.4 percent and a standard deviation of 51 perc

Question

A stock has an annual return of 10.4 percent and a standard deviation of 51 percent. What is the smallest expected loss over the next year with a probability of 1 percent? (Negative amounts should be indicated by a minus sign. Omit the "%" sign in your response. Round your answers to 2 decimal places.)

  

1.

A stock has an annual return of 10.4 percent and a standard deviation of 51 percent. What is the smallest expected loss over the next year with a probability of 1 percent? (Negative amounts should be indicated by a minus sign. Omit the "%" sign in your response. Round your answers to 2 decimal places.)

Explanation / Answer

Smallest expected loss=0.0027

Considering a normal distribution of the deviations. The deviation in the left side of the mean=51/2=25.5% Loss =Mean*SD in one side=10.4*0.255 2.652 Loss with just 1% probability=2.652*0.001 0.0027

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