Over the past four years, a stock produced returns of 14 percent, 22 percent, 6 percent,...

Over the past four years, a stock produced returns of 14 percent, 22 percent, 6 percent, and -19 percent. What is the approximate probability that an investor in this stock will not lose more than 30 percent nor earn more than 41 percent in any one given year? How would you calculate this in excel?

Expert Solution



	Year	Return in Percentage
	1	14
	2	22
	3	6
	4	-19
	SUM	23
Mean Return =23/4=	5.75	%
Standard Deviation	17.19593	%

WILL NOT LOOSE MORE THAN 30%
That means return will be more than -30%
From Cumulative Area Under Standard Normal Distrbution Table
If D=(-30-5.75)/17.19593=	-2.07898
N(d)=0.0202
Probability of Return less than30%=	2.02% (Probability of stock will not loose more than 30%=100-2.02=97.98%)
Earn not more than41%
If D=(41-5.75)/17.19593=	2.049904
N(d)=0.9798
Earn not more than41%, Probability	97.98%

jeff jeffy answered 2 years ago

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