Over a number of years, the average annual rate of return for Fidelity's Blue Chip Value mutual fund has been .08 with a standard deviation of .04.Assume annual returns are approximately normally distributed around the average rate.Using this historical information as the basis for your calculations, what is the probability of loss over the next year if you put money into this fund?
A).0130
B).001
C).0524
D).0228
E).0771

Question

Quizplus · Accepted Answer

The probability of loss corresponds to the probability that the return is less than 0. Using the Z-score formula, Z = (X - μ) / σ, where X = 0, μ = 0.08, and σ = 0.04, we find Z = (0 - 0.08) / 0.04 = -2. The probability of Z being less than -2 is approximately 0.0228.

Over a Number of Years, the Average Annual Rate of Return