This preview shows page 1. Sign up to view the full content.
Problem Set #2
Probability
1
. According to Investment Digest ("Diversification and the Risk/Reward Relationship", Winter
1994, 13), the mean of the annual return for common stocks from 1926 to 1992 was 19.4%, and
the standard deviation of the annual return was 24.5%. During the same 67year time span, the
mean of the annual return for longterm government bonds was 5.5%, and the standard deviation
was 6.0%. The article claims that the distributions of annual returns for both common stocks and
longterm government bonds are bellshaped and approximately symmetric. Assume that these
distributions are distributed as normal random variables with the means and standard deviations
given previously.
a.
Find the probability that the return for common stocks will be greater than 10%.
b.
Find the probability that the return for common stocks will be greater than 25%.
Hint: There are many ways to attack this problem in the HW. If you would like the normal
distribution table so you can draw the pictures (my preferred way of learning) then I suggest
This is the end of the preview. Sign up
to
access the rest of the document.
This note was uploaded on 04/15/2011 for the course BMGT 101 taught by Professor Smith during the Spring '11 term at University of Maryland Eastern Shore.
 Spring '11
 Smith
 Business

Click to edit the document details