Assume the returns from holding small-company stocks are normally distributed. A
ID: 2734410 • 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 16 percent and the standard deviation of those stocks for the period was 33.9 percent. Use the NORMDIST function in Excel® to answer the following questions.
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).)
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).)
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 16 percent and the standard deviation of those stocks for the period was 33.9 percent. Use the NORMDIST function in Excel® to answer the following questions.
Explanation / Answer
Probability that you will double your money in single year
Mean =16%
S.D =33%
Z = 100%-16%/33%
= 84/33 =2.54
NORMDIST(1,0.16,0.33,0) =
z >2.54
Z= (200% -16%)/33% =
Z>5.575
NORMDIST(2,0.16,0.33,0)= 0.000%
4.7362%