Posted: February 1st, 2023

For each investment class in Table 3, assume that future returns are normally distributed with the population mean and standard deviation as given. Based on this assumption:

- For each investment class, find the probability of a return that is less than zero (that is, find the probability of a loss). Is your answer reasonable for all investment classes? Explain.
- For each investment class, find the probability of a return that is:
- Greater than 5%.
- Greater than 10%.
- Greater than 20%.
- Greater than 50%.

- For which investment classes is the probability of the return greater than 50% is essentially zero? For which investment classes is the probability of such a return greater than 1 percent? Greater than 5%?
- For which investment classes is the probability of loss essentially zero?
- For which investment classes is the probability of loss greater than 1%? Greater than 10%? Greater than 20%

SOLUTION

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