According to Investment Digest (\"Diversification and theRisk/Reward Relationshi

Question

According to Investment Digest ("Diversification and theRisk/Reward Relationship", Winter 1994, 1-3), the mean of theannual return for common stocks from 1926 to 1992 was 15.4%, andthe standard deviation of the annual return was 24.5%. Duringthe same 67-year time span, the mean of the annual return forlong-term government bonds was 5.5%, and the standard deviation was6.0%. The article claims that the distributions of annualreturns for both common stocks and long-term government bonds arebell-shaped and approximately symmetric. Assume that thesedistributions are distributed as normal random variables with themeans and standard deviations given previously.

1. Find the probability that the return for common stockswill be greater than 0%.
2. Find the probability that the return for common stockswill be less than 20%.

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