The annual returns of a portfolio have a mean of 10% and a standard deviation of 20%.
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Question:
The annual returns of a portfolio have a mean of 10% and a standard deviation of 20%. The returns are normally distributed. An investor is considering investing in this portfolio, but is risk-averse and wants to make sure that the probability of losing money is very low.
a) What is the probability that the portfolio return will be negative in any given year?
b) If the investor wants to ensure that there is no more than a 5% chance of losing money in any given year, what is the minimum return that the portfolio must achieve?
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Related Book For
Principles of Financial Accounting
ISBN: 978-1133939283
12th edition
Authors: Belverd E. Needles, Marian Powers
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