A stock had returns of 14 percent,13 percent,-10 percent,and 7 percent for the past four years.Which one of the following best describes the probability that this stock will lose no more than 10 percent in any one year?

Question

Quizplus · Accepted Answer

Average return = (0.14 + 0.13 - 0.10 + 0.07)/4 = 0.06σ = √[1/(4 - 1)][(0.14 - 0.06)² + (0.13 - 0.06)² + (-0.10 - 0.06)² + (0.07 - 0.06)²] = 0.11106Lower bound of 68 percent range = 0.06 - (1 × 0.11106) = -5.11 percentLower bound of 95 percent range = 0.06 - (2 × 0.11106) = -16.21 percentProbability of losing more than 10 percent in any given year is between 2.5 and 16 percent. Thus, the probability of NOT losing more than 10 percent is between 84 and 97.5 percent.

A Stock Had Returns of 14 Percent,13 Percent,-10 Percent,and 7