The average return for large-cap domestic stock funds over the three years 2009–

Q: The average return for large-cap domestic stock funds over the three years 2009–

a) probability an individual large-cap domestic stock fund had a three-year return of at least 20% b) probability an individual large-cap domestic stock fund had a three-year return of 10% or less c) for top 10% ; z score =1.2816 hence corresponding return =mean +z*std deviation =14.8+1.2816*4.4 =20.44 for normal distribution z score =(X-)/ here mean= = 14.800 std deviation == 4.40

ID: 3045942 • Letter: T

Question

The average return for large-cap domestic stock funds over the three years 2009–2011 was 14.8%. Assume the three-year returns were normally distributed across funds with a standard deviation of 4.4%.

a. What is the probability an individual large-cap domestic stock fund had a three-year return of at least 20% (to 4 decimals)?

b. What is the probability an individual large-cap domestic stock fund had a three-year return of 10% or less (to 4 decimals)?

c. How big does the return have to be to put a domestic stock fund in the top 10% for the three-year period (to 2 decimals)? %

Explanation / Answer

probability an individual large-cap domestic stock fund had a three-year return of at least 20%

probability an individual large-cap domestic stock fund had a three-year return of 10% or less

for top 10% ; z score =1.2816

hence corresponding return =mean +z*std deviation =14.8+1.2816*4.4 =20.44

for normal distribution z score =(X-)/ here mean= = 14.800 std deviation == 4.40

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The average return for large-cap domestic stock funds over the three years 2009–

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The average return for large-cap domestic stock funds over the three years 2009–

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