According to Investment Digest (\"Diversification and theRisk/Reward Relationshi
ID: 2952579 • Letter: A
Question
According to Investment Digest ("Diversification and theRisk/Reward Relationship", Winter 1994, 1-3), the mean of theannual return for common stocks from 1926 to 1992 was 15.4%, andthe standard deviation of the annual return was 24.5%. Duringthe same 67-year time span, the mean of the annual return forlong-term government bonds was 5.5%, and the standard deviation was6.0%. The article claims that the distributions of annualreturns for both common stocks and long-term government bonds arebell-shaped and approximately symmetric. Assume that thesedistributions are distributed as normal random variables with themeans and standard deviations given previously.- Find the probability that the return for common stockswill be greater than 0%.
- Find the probability that the return for common stockswill be less than 20%.