A stock has an expected rate of return of 14.2 percent and a standard deviation of 23.4 percent.Which one of the following best describes the probability that this stock will lose more than 1/3 of its value in any one year?
A)Less than .1%
B)Approximately 2.25%
C)Approximately 1%
D)Less than .26%
E)Approximately 4.60%

Question

Quizplus · Accepted Answer

Lower bound of 95.44 percent probability range = .142 - (2 × .234)= -.326,or -32.6%Probability = (100% - 95.44%)/2 = 2.28%A loss of 1/3,or 33 percent,would be a tad further out into the tail,so a probability of 2.25 percent would be a good approximation.

A Stock Has an Expected Rate of Return of 14