QUESTION 6 Suppose the monthly returns of a stock follow a normal distribution w

Question

QUESTION 6

Suppose the monthly returns of a stock follow a normal distribution with a mean of 3.5% and a standard deviation of 6.2%. Use this distribution to answer questions 6 to 9.

What is the probability that an investment on this stock will yield a monthly return between 5% and 10%?     (note: round it to the nearest decimal number with four decimal places.)

QUESTION 7

What is the probability that an investment on the stock will lose money in a month?      (note: round it to the nearest decimal number with four decimal places.)

QUESTION 8

What is the probability that the monthly return will exceed 15%?      (note: round it to the nearest decimal number with four decimal places.)

QUESTION 9

There is a 25% probability that the monthly returns will dip below ________   

Explanation / Answer

6. P(0.05<x<0.10)=P(0.05-0.035/0.062<z<0.10-0.035/0.062)=P(0.21<z<0.44)=0.0869

7. P(x>0.035)=P(z>0)=0.5

8. P(x>0.15)=P(z>1.85)=0.0322

9. P(X<x)=0.25

so z=-0.674=x-0.035/0.062

so x=-0.0068

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