The expected rate of return for the coming year on FTC common stock is normally distributed with a mean of 14% and a standard deviation of 7%. Determine the probability of earning more than 21% on FTC common stock. (Note: Table V is required to work this problem.)
A) 1.00
B) 0.8413
C) 0.0013
D) 0.1587

Question

Quizplus · Accepted Answer

To find the probability of earning more than 21% on FTC common stock, we first calculate the Z-score using the formula Z = (X - μ) / σ, where X is the value of interest (21%), μ is the mean (14%), and σ is the standard deviation (7%). This gives us Z = (21 - 14) / 7 = 1. The Z-score of 1 corresponds to a probability of 0.8413 in the standard normal distribution table for values less than 21%. Therefore, the probability of earning more than 21% is 1 - 0.8413 = 0.1587.

The Expected Rate of Return for the Coming Year on FTC