Question

Please read through the entire question before answering. I'm asking for assistance on how to calculate LOSS, not gain. Thank you!

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%.

1. What is the probability that a stock in the S&P 500 lost 20% or more in 2014?
2. What is the probability that a stock in the S&P 500 lost 30% or more in 2014?
3. Repeat for a stock in the NASDAQ.
4. Write a short report on your findings Be sure to include a discussion on the risks associated with a large standard deviation. How would you use the findings to provide advice on investing in the S&P 500 or NASDAQ stock market?  

Answer 1

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