A stock has an expected rate of return of 7.9% and a standard deviation of 6.2%. Which one of the following best describes the probability that this stock will lose more than 4.5% in any one given year?

Question

Quizplus · Accepted Answer

The probability of losing more than 4.5% can be calculated using the normal distribution. The z-score for a return of -4.5% is (-4.5% - 7.9%) / 6.2% = -2. The probability of a z-score less than -2 is approximately 2.28%, which is less than 2.5%.

A Stock Has an Expected Rate of Return of 7