All the major stock market indexes posted gains in 2010. The mean one-year retur

Question

All the major stock market indexes posted gains in 2010. The mean one-year return for stocks in the S&P; 500, a group of 500 very large companies, was 12.8%. The mean one-year return for the NASDAQ, a group of 3,200 small and medium-sized companies, was 16.9%. Historically, the one- year returns are approximately normally distributed, the stan- dard deviation in the S&P; 500 is approximately 20%, and the standard deviation in the NASDAQ is approximately 30%. c. What is the probability that a stock in the S&P; 500 lost 20% or more in 2010? d. What is the probability that a stock in the S&P; 500 lost 40% or more in 2010?

Explanation / Answer

a. the probability that a stock in the S&P 500 gained value in 2010
z(0) = (0-(-38.5))/20 = 1.925
P(x > 0) = P(z > 1.925 = 0.0271

b. the probability that a stock in the S&P 500 gained 10% more
z-value of 10

the probability of z being >= that z-value

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