A stock had annual returns of 3.6 percent, -8.7 percent, 5.6 percent, and 12.5 p

Question

A stock had annual returns of 3.6 percent, -8.7 percent, 5.6 percent, and 12.5 percent over the past four years. Which one of the following best describes the probability that this stock will produce a return of 22 percent or more in a single year?

less than 0.1 percent

less than 0.5 percent but greater than 0.1 percent

less than 1.0 percent but greater the 0.5 percent

less than 2.5 percent but greater than 0.5 percent

less than 5 percent but greater than 2.5 percent

less than 0.1 percent

less than 0.5 percent but greater than 0.1 percent

less than 1.0 percent but greater the 0.5 percent

less than 2.5 percent but greater than 0.5 percent

less than 5 percent but greater than 2.5 percent

Explanation / Answer

Please provide feedback... Thanks in advance :-)

Calculation of Mean and SD of stock Years Returns Return-mean (Return-Mean)^2 1 3.60 0.35 0.12 2 -8.70 -11.95 142.80 3 5.60 2.35 5.52 4 12.50 9.25 85.56 13.00 234.01 Mean = 13/4= 3.25 Variance = 234.01/4= 58.50 SD=Sq. root of variance= 7.65 Using Normal distribution to calculate probablity of occurance of 22% return z= x-Mean/SD z=22-3.25/7.65= 2.4514 Probability From z table = 0.0071 Therefore it is Less then 0.1

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