Assume that the returns from an asset are normally distributed. The average annu

Question

Assume that the returns from an asset are normally distributed. The average annual return for this asset over a specific period was 13.4 percent and the standard deviation of those stocks in this period was 43.62 percent.

What is the approximate probability that your money will double in value in a single year? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

What about triple in value? (Round your answer to 6 decimal places. (e.g., 32.161616))

Assume that the returns from an asset are normally distributed. The average annual return for this asset over a specific period was 13.4 percent and the standard deviation of those stocks in this period was 43.62 percent.

Explanation / Answer

z = (1 - 0.134)/0.4362 = 1.985328

Prob(Double in value) = Prob(Z > 1.985328) = 1 - Prob(Z < 1.985328) = 0.02355400

Prob(Double in value) = 2.355400 %

z = (2 - 0.134)/0.4362 = 4.277854

Prob(Double in value) = Prob(Z > 4.277854) = 1 - Prob(Z < 4.277854) = 0.00000944

Prob(Triple in value) = 0.000944%

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