Suppose that a group of mutual funds had an average return of 2% last year with a standard deviation of 3.6%. Assume these funds are normally distributed. What is the probability that a randomly selected fund had a positive return last year? |
Solution:
Given: a group of mutual funds had an average return of 2% last year with a standard deviation of 3.6%.
Find:
P( a randomly selected fund had a positive return last year) =.................?
That is find:
P( X > 0% )= ..............?
Find z score for x = 0%
thus we get:
P( X > 0% )= P( Z > - 0.56 )
P( X > 0% )= 1 - P( Z < - 0.56 )
Look in z table for z = -0.5 and 0.06 and find corresponding area.
P( Z< -0.56)= 0.2877
thus
P( X > 0% )= 1 - P( Z < - 0.56 )
P( X > 0% )= 1 -0.2877
P( X > 0% )= 0.7123
Thus P( a randomly selected fund had a positive return last year) = 0.7123
Suppose that a group of mutual funds had an average return of 2% last year with...
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