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 13.6 percent and the standard deviation of those stocks in this period was 43.86 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 13.6 percent and the standard deviation of those stocks in this period was 43.86 percent.

Explanation / Answer

Assume that the returns from an asset are normally distributed. The average annual return for this asset over a specific period was 13.6 percent and the standard deviation of those stocks in this period was 43.86 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))

z = (x- average annual return )/SD

X is the requirement of return = (2-1)/1 = 100%

average annual return = 13.6%

SD = 43.86%

Z = (100%-13.6%)/43.86%

Z = 1.9699

Using Z table

Probability of Less than Double in Value = 97.56%

Probability of greater than Double in Value = 1- 97.56% = 2.44%

  Double in value 2.44 %

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

z = (x- average annual return )/SD

X is the requirement of return = (3-1)/1 = 200%

average annual return = 13.6%

SD = 43.86%

Z = (200%-13.6%)/43.86%

Z = 4.249886

Using Z table

Probability of Less than Triple in Value = 100%

Probability of greater than Triple in Value = 1- 100% = 0%

Triple in value 0 %

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