Suppose the returns on an asset are normally distributed. Suppose the historical

Question

Suppose the returns on an asset are normally distributed. Suppose the historical average annual return for the asset was 5.1 percent and the standard deviation was 14.5 percent. What is the probability that your return on this asset will be less than

Suppose the returns on an asset are normally distributed. Suppose the historical average annual return for the asset was 5.1 percent and the standard deviation was 14.5 percent. What is the probability that your return on this asset will be less than

Explanation / Answer

the mean return on assest = 5.1

the standard deviation = 14.5

in normal probability distribution approximately 2/3 observations are within one standard deviation this means , there 1/3 observations outside one stand deviation

z= x-u/sd

=-8.1-5.1/14.5

=-0.910

p(z<-0.910) = 0.1814 = 18.14 %

95% level : 5.1 +/- 2* (14.5 ) = -23.9 % to 34.1 %

99% level : 5.1 +/- 3 * (14.5) = -38.4 % to 48.6%

Related Questions

Navigate

• Browse (All)
• Browse S
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.