Assume the returns from holding small-company stocks are normally distributed. A
ID: 2714927 • Letter: A
Question
Assume the returns from holding small-company stocks are normally distributed. Also assume the average annual return for holding the small-company stocks for a period of time was 15.9 percent and the standard deviation of those stocks for the period was 33.8 percent. Use the NORMDIST function in Excel® to answer the following questions.
Requirement 1:
What is the approximate probability that your money will double in value in a single year? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places (e.g., 32.16).)
Probability ____%
Requirement 2:
What is the approximate probability that your money will triple in value in a single year? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 8 decimal places (e.g., 32.16161616).)
Probability ____%
Explanation / Answer
Here in the question it is given that Mean return on the stock = 15.90% Standard deviation of stock = 33.80% Answer-1 If the money gets doubled then return = 100.00% Therefore the probability that the money will double in a year = Normdist(15.9%,100%,33.8%,TRUE) = 0.64% Answer-2 If the money gets doubled then return = 200.00% Therefore the probability that the money will double in a year = Normdist(15.9%,200%,33.8%,TRUE) = 0.000003%