please show work! 7. Normal Distribution Aftcr Faccbook\'s carnings announccmcnt
ID: 3041833 • Letter: P
Question
please show work!
7. Normal Distribution Aftcr Faccbook's carnings announccmcnt we have thc following distribution of rcturns. Hirst, thc stock beats earnings expectations 75% of the time, and the other 25% of the time earnings are in line or disappoint. Second, when the stock beats earnings, the probability distribution of percent changes is normal with a mean of IC% with a standard deviation of 5% and, when the stock misses earnings, a normal with a mean of 5% and a standard deviation of 8%, respectively (a) Ahead of the earnings announcement, what is the probability that Facebook stock will have a return greater than 5%? (b) Do you get the same answer for the probability that it drops at least 5%?Explanation / Answer
expected return =0.75*10+0.25*(-5) =6.25
and std deviation =((0.75*5)2+(0.25*8)2)1/2 =4.25
a) probability that stock will have a return greater than 5% =P(X>5) =P(Z>(5-6.25)/4.25) =P(Z>-0.1529)=0.5608
b) No as expected return is not centered at 0 therefore we will not get same answer as we have received in part a.
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.