Question
Assume the annual mean return on ABC stock is around 15% and the annual standard deviationis around 25%. Assume the annual and daily returns on
Assume the annual mean return on ABC stock is around 15% and the annual standard deviationis around 25%. Assume the annual and daily returns on ABC stock are normally distributed.
a.[5 pts] What is the probability that ABC will lose money during a year?
b.[5 pts] There is a 5% chance that ABC will earn a return of at least what value during a year?
c.[5 pts] There is a 10% chance that ABC will earn a return of less than or equal to whatvalue during a year?
d.[5 pts] What is the probability that ABC will earn at least 35% during a year?
e.[5 pts] Assume there are 252 trading days in a year. What is the probability that ABC willlose money on a given day? (Hint: Let Y be the annual return on ABC and Xibe the returnon ABC on dayi. Then [approximately] Y = X1+ X2+ ... + X252. This is a uniquecharacteristic of normally distributed variables. The sum/difference of two normallydistributed variables follows a normal distribution as well.)
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