Question

In: Statistics and Probability

A certain stock market had a mean return of 2.6% in a recent year. Assume that...

A certain stock market had a mean return of 2.6% in a recent year. Assume that the returns for stocks on the market were distributed normally, with a mean of 2.6 and a standard deviation of 10. Complete parts (a) through (g) below.

a. If you select an individual stock from this population, what is the probability that it would have a return less than 0 (that is, a loss)?

The probability is (Round to four decimal places)

b. If you select an individual stock from this population, what is the probability that it would have a return between -11 and -19?

The probability is (Round to four decimal places)

c. If you select an individual stock from this population, what is the probability that it would have a return greater than -7?

The probability is (Round to four decimal places)

d. If you select a random sample of four stocks from this population, what is the probability that the sample would have a mean return less than 0 (a loss)?

e. If you select a random sample of four stocks from this population, what is the probability that the sample would have a mean return between -11 and -19?

The probability is (Round to four decimal places)

Solutions

Expert Solution

Let X denotes the return from a randomly selected stock.

X ~ Normal(2.6, 10²)

a) If you select an individual stock from this population, the probability that it would have a return less than 0 (that is, a loss)

b) The probability that it would have a return between -11 and -19

c) If you select an individual stock from this population, the probability that it would have a return greater than -7 is

d) Let denotes the mean return for a random sample of four stocks from this population.

Now,

The probability that the sample would have a mean return less than 0 (a loss)

e) The probability that the sample would have a mean return between -11 and -19

orchestra answered 1 year ago

Next > < Previous

Related Solutions

The major stock market indexes had strong results in 2014. The mean one-year return for stocks...

The major stock market indexes had strong results in 2014. The mean one-year return for stocks in the S&P 500, a group of 500 very large companies was +11.4%. The mean one year return for the NASDAQ, a group of 3200 small and medium-sized companies was +13.4%. Historically, the one-year returns are approximately normal, the standard deviation in the S&P 500 is approximately 20% and the standard deviation in NASDAQ is approximately 30%. What is the probability that a stock...

Assume stock A’s recent 5-year return is 8%, 5%, -2%, 6% and 3%. What is the...

Assume stock A’s recent 5-year return is 8%, 5%, -2%, 6% and 3%. What is the standard error of stock A using the information in the past 5 years? Follow up question: now there is another stock, stock B, that has an expected return of 4.60% and a standard deviation of 3.20%. Which one would you prefer? Follow up question: now there is another stock, stock C, that has an expected return of 5.20% and a standard deviation of 4.75%....

3. Assume you had two stocks. Stock A had an expected return of 20% and a...

3. Assume you had two stocks. Stock A had an expected return of 20% and a standard deviation of 25%. Stock B had an expected return of 15% and a standard deviation of 20%. You want to create a portfolio made up of 65% stock A and 35% stock B. Find the expected return and standard deviation of this portfolio under the following conditions 3a. Correlation between stock A and B is 1.0 3b. Correlation between stock A and B...

Assume that (i) the expected return on the stock market is 10% with a standard deviation...

Assume that (i) the expected return on the stock market is 10% with a standard deviation of 20%, (ii) the expected return on gold is 5% with a standard deviation of 25%, and (iii) the risk-free rate is 2%. Further assume the correlation between returns on stocks and those on gold is -0.5. Which of the following is closest to the volatility of a portfolio that is 80% stocks and 20% gold? Group of answer choices 14.2% 15.0% 10.2% 21.0%...

The Rate of Return for firms on the stock market is about 8% on average(the mean)...

The Rate of Return for firms on the stock market is about 8% on average(the mean) with a standard deviation of 6%. (A) What proportion of firms will earn a return between 5% and 10%? (B) To the nearest percent, find the probability of a firm earning 0% or less per year (i.e. not making money or losing money)? If there are 1,000 firms listed on the stock market, then how many firms will not make any money or lose...

Assume these are the stock market and Treasury bill returns for a 5-year period: Year Stock...

Assume these are the stock market and Treasury bill returns for a 5-year period: Year Stock Market Return (%) T-Bill Return (%) 2011 ?34.33 4.30 2012 31.70 0.70 2013 14.56 0.27 2014 3.58 0.04 2015 19.46 0.06 a. What was the risk premium on common stock in each year? (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.) b. What was the average risk premium? (Do not round intermediate calculations. Enter your answer...

Assume these are the stock market and Treasury bill returns for a 5-year period: Year Stock...

Assume these are the stock market and Treasury bill returns for a 5-year period: Year Stock Market Return (%) T-Bill Return (%) 2013 34.20 0.14 2014 13.90 0.14 2015 −3.80 0.14 2016 14.80 0.09 2017 24.30 0.11 Required: a. What was the risk premium on common stock in each year? b. What was the average risk premium? c. What was the standard deviation of the risk premium? (Ignore that the estimation is from a sample of data.)

Assume these are the stock market and Treasury bill returns for a 5-year period: Year Stock...

Assume these are the stock market and Treasury bill returns for a 5-year period: Year Stock Market Return T-Bill Return Year 1 − 35.73 3.10 Year 2 30.10 1.50 Year 3 15.56 .21 Year 4 2.38 .06 Year 5 18.26 .08 a. What was the risk premium on common stock in each year? (Negative amounts should be indicated by a minus sign. Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.) Year Risk...

Assume these are the stock market and Treasury bill returns for a 5-year period: Year Stock...

Assume these are the stock market and Treasury bill returns for a 5-year period: Year Stock Market Return (%) T-Bill Return (%) 2011 −36.53 2.10 2012 29.10 0.60 2013 16.46 0.16 2014 1.58 0.08 2015 16.86 0.10 a. What was the risk premium on common stock in each year? (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.) b. What was the average risk premium? (Do not round intermediate calculations. Enter your answer...

Assume that the CAPM is a good description of stock price returns. The market expected return...

Assume that the CAPM is a good description of stock price returns. The market expected return is 7% with 10% volatility and the risk-free rate is 3%. New news arrives that does not change any of these numbers but it does change the expected return of the following stocks Expected Return Volatility Beta Green Leaf 12% 20% 1.50 NatSam 10% 40% 1.80 HanBel 9% 30% 0.75 Rebecca Automobile 6% 35% 1.20 a. At current market prices, which stocks represent buying...

Subjects