Assume the returns from an asset are normally distributed. The average annual return for the asset is 17.4 percent and the standard deviation of the returns is 27.5 percent. What is the approximate probability that your money will double in value in a single year?
A) Close to .5 percent
B) Close to 1 percent
C) Less than 2.5 percent but greater than 1 percent
D) Less than 5 percent but greater than 2.5 percent
E) Less than 10 percent but greater than 5 percent

Question

Quizplus · Accepted Answer

To double the money, a 100% return is needed. Using the normal distribution, the z-score is (100% - 17.4%) / 27.5% ≈ 3. This corresponds to a probability of about 0.13%, which is closest to 0.5%.

Assume the Returns from an Asset Are Normally Distributed