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A stock had returns of 4 percent, 11 percent, 16 percent, -6 percent, and -2 percent...

A stock had returns of 4 percent, 11 percent, 16 percent, -6 percent, and -2 percent for the past five years. Based on these returns, what is the approximate probability that this stock will return at least 20 percent in any one given year?

A) Greater than 1 percent but less than 2.5 percent.
B) Greater than 2.5 percent but less than 16 percent.
C) Greater than .5 percent but less than 1 percent.
D) Less than .5 percent.
E) Greater than 16.0 percent.
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Homework Answers

Answer #1

Average return = (0.04 + 0.11 + 0.16 - 0.06 - 0.02)/ 5

Average return = 4.6%

Standard deviation = ((1/(5 - 1) * ((0.04 - 0.046)2+ (0.11 - 0.046)2 + (0.16 - 0.046)2 + (-0.06 - 0.046)2 + (-0.02 - 0.046)2)0.5

Standard deviation = ((1/(4) * 0.03272)0.5

Standard deviation = ((1/(4) * 0.03272)0.5 = 9.04%

Upper end of 68 percent range = 0.046 + 0.0904

Upper end of 68 percent range = 13.64%

Probability of earning at least 20 percent in any one year is less than 16 percent but greater than 2.5 percent

Option B

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