A stock has an expected rate of return of 9.8 percent and a standard deviation of 15.4 percent. Which one of the following best describes the probability that this stock will lose at least half of its value in any one given year?
A) less than 16 percent
B) less than .5 percent
C) less than 1.0 percent
D) less than 2.5 percent
E) less than 5.0 percent

Question

Quizplus · Accepted Answer

The probability of a stock losing at least half of its value in any given year is extremely low, especially when the expected rate of return is positive (9.8 percent) and the standard deviation, which measures the volatility, is 15.4 percent. This indicates that while the stock's returns can vary, the likelihood of such an extreme loss is very small, hence less than .5 percent is a reasonable estimation without performing detailed statistical calculations.

A Stock Has an Expected Rate of Return of 9