The return expected from a risky investment is 24%, and the standard deviation of this return is 17%. If returns from this investment are normally distributed, what is the probability that the investment may earn a negative rate of return? (Note: Table V is required to work this problem.)
A) 8.33%
B) 7.93%
C) 6.88%
D) 5.44%

Question

Quizplus · Accepted Answer

To find the probability of earning a negative rate of return, we first calculate the Z-score using the formula Z = (X - μ) / σ, where X is the return rate in question (0% for a negative return threshold), μ is the mean return (24%), and σ is the standard deviation (17%). Thus, Z = (0 - 24) / 17 = -1.41. Looking up the Z-score of -1.41 in the standard normal distribution table (Table V), we find the probability associated with this Z-score is approximately 7.93%. This means there's a 7.93% chance the investment will earn a negative rate of return.

The Return Expected from a Risky Investment Is 24%, and the Standard