Assuming the returns from holding small-company stocks are normally distributed.

Question

Assuming the returns from holding small-company stocks are normally distributed. Also assume the average annual return for holding the small-company stocks for a period of time was 16.2 percent and the standard deviation of those stocks for the period was 34.7 percent. Requirement 1: What is the approximate probability that your money will double in value in a single year? (Do not include the percent sign (%). Round your answer to 3 decimal places (e.g., 32.161).) Probability % Requirement 2: What is the approximate probability that your money will triple in value in a single year? (Do not include the percent sign (%). Round your answer to 8 decimal places (e.g., 32.16161616).) Probability %

Explanation / Answer

With an average of 16.2 percent and a standard deviation of 34.7, Doubling (100% return) would be 83.8/34.7 = 2.415 std's from the mean, with a cumulative distribution function of .787. Tripling (200% return) would be 183.8/34.7, with a .0000058 probability.

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