Suppose that the returns on an investment are normally distributed with an expected return of 8% and standard deviation of 4%.What is the likelihood of making a negative return? (Hint: the area under a curve for 1 std dev is 34.13%,2 std dev is 47.73% and 3 std dev is 49.87%).
A)47.73%
B)34.13%
C)15.87%
D)2.27%

Question

Quizplus · Accepted Answer

The area under the curve for 3 standard deviations is 49.87%. Since the expected return is 8% and the standard deviation is 4%, a negative return would be more than 3 standard deviations below the mean. Therefore, the likelihood of making a negative return is 100% - 49.87% = 50.13%, which is closest to 47.73%.

Suppose That the Returns on an Investment Are Normally Distributed