Problem Set 2

# Problem Set 2 - Problem Set #2 Probability 1. According to...

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Problem Set #2 Probability 1 . According to Investment Digest ("Diversification and the Risk/Reward Relationship", Winter 1994, 1-3), 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 67-year time span, the mean of the annual return for long-term 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 long-term government bonds are bell-shaped 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
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## 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.

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