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# According to Investment Digest ("Diversification and the Risk/Reward Relationship", Winter 1994, 1-3), the mean of the annual return for common stocks from 1926 to 1992 was 12.4%, and the standard deviation of the annual return was 20.6%

According to Investment Digest ("Diversification and the Risk/Reward Relationship", Winter 1994, 1-3), the mean of the annual return for common stocks from 1926 to 1992 was 12.4%, and the standard deviation of the annual return was 20.6%. The article claims that the distributions of annual returns for both common stocks is approximately bell-shaped and symmetric.. Assume that the distribution is normally distributed with a mean and standard deviation given above.
Find the probability that the return for common stocks will be
a. Greater than 0%
b. Greater than 10%
c. Greater than 20%
d. Less than -10%

According to Investment Digest ("Diversification and the Risk/Reward Relationship", Winter 1994, 1-3), the mean of the annual return for common stocks from 1926 to 1992 was 12.4%, and the standard deviation of the annual return was 20.6%. The article claims that the distributions of annual returns for both common stocks is approximately bell-shaped and symmetric.. Assume that the distribution is normally distributed with a mean and standard deviation given above. Find the probability that the return for common stocks will be a. Greater than 0% z(0) = (0-0.124)/0.206 = -0.60194... P(x>0) = P(z>-0.60194...) = 0.7264 ---------------------------------------------- b. Greater than 10% Same procedure: Ans: 0.5464 --------------------- c. Greater than 20% Ans: 0.3561 ---------------------- d. Less than -10% Ans: 0.1280 ======================================= Cheers, Stan H.
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• #### The following data on annual rates of return were collected from five stocks listed on the NewYork Stock Exchange (“the big board”) and five stocks listed on NASDAQ

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