A security produced returns of 12 percent,-11 percent,-2 percent,15 percent,and 9 percent over the past five years,respectively.Based on these five years,what is the probability that an investor in this stock will lose more than 17.06 percent in any one given year?

Question

Quizplus · Accepted Answer

Average return = (0.12 - 0.11 - 0.02 + 0.15 + 0.09)/5 = 0.046σ² = [(0.12 - 0.046)² + (-0.11 - 0.046)² + (-0.02 - 0.046)² + (0.15 - 0.046)² + (0.09 - 0.046)²]/(5 - 1) = 0.01173σ = √0.01173 = 0.108305Lower end of 95 percent probability range = 0.046 - (2 × 0.108305) = -17.06 percentProbability of losing more than 17.06 percent = (1 - 0.95)/2 = 2.5 percent

A Security Produced Returns of 12 Percent,-11 Percent,-2 Percent,15 Percent,and