Question

Assume that the returns from an asset are normally distributed. The average annual return for this asset over a specific period was 14.7 percent and the standard deviation of those returns in this period was 43.59 percent.

a.	What is the approximate probability that your money will double in value in a single year? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
b.	What about triple in value? (Do not round intermediate calculations and enter your answer as a percent rounded to 6 decimal places, e.g., .161616.)

Answer 1

a;

For money to double; return=100%

We need to find Z value and then refer it in z table(standard normal table) to find the probability

z= (100%-14.7%)/43.59% =1.957

from z table probability= .5-.474 =.026 =2.6% probability that stock will be equalt to or greater than twice the intital price

b;

For money to triple; return=200%

We need to find Z value and then refer it in z table(standard normal table) to find the probability

z= (200%-14.7%)/43.59% =4.2509

from z table probability corresponding to 4.2509= .5-.4999 =.0001 =.01% probability that stock will be equalt to or greater than twice the intital price