The yearly return on a common stock is normally distributed with a mean of 8% an

Question

The yearly return on a common stock is normally distributed with a mean of 8% and a standard deviation of 496 Use this information to answer the next five questions. 14. The expected yearly return on the common stock is what percent? 15 What is the probability that the yearly return on this common stock is between 26% and 10%? 16 Sixty-seven percent of the time the yearly return on this common stock is less than what percent? That is, find the 67th percentile of this distribution 17. One and one-half percent of the time the yearly return on this common stock exceeds what percent return? That is, find Xo, such that P(X Xo):0.0150 18 What is the probability that this common stock will lose money?

Explanation / Answer

14)

expected yearly return=8%

15) P(2.6<X<10)=P((2.6-8)/4<Z<(10-8)/4)=P(-1.35<Z<0.5)=0.6915-0.0885 =0.6030

16) for 67th percentile ' z= 0.4399

therefore corresponding value =mean+z*std error =8+0.4399*4 =9.76

17)for top 1.5% ; z=1.17

therefore corresponding value =mean+z*std error =8+2.17*4 =16.68

18)

probability that this stock lose money =P(X<0) =P(Z<(0-8)/4)=P(Z<-2)=0.02275

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