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Problem 2 (50 points). Suppose that a security's returns are normally distributed with an expected return of 8% and standard deviation of 20%. A. (15
Problem 2 (50 points). Suppose that a security's returns are normally distributed with an expected return of 8% and standard deviation of 20%. A. (15 points) What is the probability that an investor won't lose money during the coming year if she were to invest in this risky security? B. (15 points) Suppose our investor forms a portfolio in which half of her money is allocated to the risky security described in part A and the other half of her money is allocated to a riskless asset with an expected return of 2%. What is the probability she won't lose money during the coming year if she were to invest in this portfolio (hint: the expected return for this portfolio is 5%, and its stande deviation is 10%). C. (20 points) What is the probability that our investor will earn at least 8% during the coming year if 1) she invests all her money in the risky security described in part A, and 2) she invests all her money in the portfolio described in part B
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