A stock has an expected rate of return of 14.2 percent and a standard deviation of 23.4 percent. Which one of the following best describes the probability that this stock will lose more than 32.6 percent of its value in any one year? (A) Approximately 1 percent. (B) Less than 1 percent (C) Approximately 2.28 percent (D) Less than 0.26 percent

Question

Nia Bonilla

Business

9 June, 14:49

A stock has an expected rate of return of 14.2 percent and a standard deviation of 23.4 percent. Which one of the following best describes the probability that this stock will lose more than 32.6 percent of its value in any one year? (A) Approximately 1 percent. (B) Less than 1 percent (C) Approximately 2.28 percent (D) Less than 0.26 percent

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Erica Le · Answer 1

1.

mean = (14%+3%+9%-12%) / 4=3.5%

variance = ((14%-3.5%) ^2 + (3%-3.5%) ^2 + (9%-3.5%) ^2 + (-12%-3.5%) ^2) / 3=0.0127

Option D

2.

mean = (19%+12%-10%+25%+4%) / 5=10%

standard deviaiton=sqrt (((19%-10%) ^2 + (12%-10%) ^2 + (-10%-10%) ^2 + (25%-10%) ^2 + (4%-10%) ^2)) / 4) = 12.2147%

Pr (X>=30%) = 1-Pr (X<30%) = 1-Pr (Z< (30%-10%) / 12.2147%) = 5.077%

Option 1

3.

Pr (X<-32.6%) = Pr (Z< (-32.6%-14.2%) / 23.4%) = 2.28%

Option C