Assume that the returns from holding small company stocks are normally distribut

Question

Assume that the returns from holding small company stocks are normally distributed. The average annual return for this asset over a specific period was 16.7 percent and the standard deviation of those stocks in this period was 32.6 percent. Refer to Table A.5.

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))

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))

Explanation / Answer

mean=16.7% std=32.6%

Z=(x-mean)/std

a) here x=100%

Z=(100%-16.7%)/32.6%

=2.56

P(Z>2.56) according to normal distribution table it is 0.53%

b)Here X=200%

Z=(200%-16.7%)/32.6%

=5.62

The norm dist table we do not have for above Z=4 so we can assume that it is 0

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