Trailer Co. stock has an expected return of 11.8 percent and a standard deviation of 11.8 percent. What is the smallest expected loss over the next month given a probability of 5 percent?
A) -4.62 percent
B) -6.09 percent
C) -7.27 percent
D) -11.49 percent
E) -13.77 percent

Question

Quizplus · Accepted Answer

The smallest expected loss over the next month given a probability of 5 percent is -4.62 percent. This is because the expected return is 11.8 percent and the standard deviation is 11.8 percent, so the z-score for a probability of 5 percent is -1.645. This means that the expected loss is 11.8 percent - (1.645 * 11.8 percent) = -4.62 percent.