A private equity firm is evaluating two alternative investments. Although the returns are random, each investments return
Question:
A private equity firm is evaluating two alternative investments. Although the returns are random, each investment’s return can be described using a normal distribution. The first investment has a mean return of
$2,000,000 with a standard deviation of $125,000. The second investment has a mean return of $2,275,000 with a standard deviation of $500,000.
a. How likely is it that the first investment will return
$1,900,000 or less?
b. How likely is it that the second investment will return $1,900,000 or less?
c. If the firm would like to limit the probability of a return being less than $1,750,000, which investment should it make?
Step by Step Answer:
Business Statistics A Decision Making Approach
ISBN: 9780136121015
8th Edition
Authors: David F. Groebner, Patrick W. Shannon, Phillip C. Fry, Kent D. Smith