A stock has an expected rate of return of 13.9 percent and a standard deviation of 23.3 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 0.1%
B)Approximately 2.25%
C)Approximately 1.13%
D)Less than 0.26%
E)Approximately 4.66%

Question

Quizplus · Accepted Answer

Lower bound of 95.44 percent probability range = 0.139 − (2 × 0.233)= −0.327,or −32.7% Probability = (100% − 95.44%)/ 2 = 2.28% A loss of 1/3,or 33.3 percent,would be a tad further out into the tail than a loss of 32.7 percent,so a probability of 2.25 percent would be a reasonable approximation.

A Stock Has an Expected Rate of Return of 13