An investment strategy has an expected return of 14 percent and a standard devia

Question

An investment strategy has an expected return of 14 percent and a standard deviation of 9 percent. Assume investment returns are bell shaped.

How likely is it to earn a return between 5 percent and 23 percent? (Enter your response as decimal values (not percentages) rounded to 2 decimal places.)

How likely is it to earn a return greater than 23 percent? (Enter your response as decimal values (not percentages) rounded to 2 decimal places.)

How likely is it to earn a return below 4 percent? (Enter your response as decimal values (not percentages) rounded to 3 decimal places.)

An investment strategy has an expected return of 14 percent and a standard deviation of 9 percent. Assume investment returns are bell shaped.

Explanation / Answer

Mean = 14
Stdev = 9

We use the above normal params to solve the problem.

a. P(5<X<23) = P(5-14/9 <Z< 23-14/9) = P(-1<Z<1) = .68

b. P(X>23) = P(Z> 23-14/9) = P(Z>1) = .1587

c. P(X<-4) = P(Z< -4-14/9) = P(Z<-2) = .02275

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