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home / study / math / statistics and probability / statistics and probability questions and answers / portfolio returns. the capital asset pricing model is a financial model that assumes returns ... Your question has been answered Let us know if you got a helpful answer. Rate this answer Question: Portfolio returns. The Capital Asset Pricing Model is a financial model that assumes returns on a... Portfolio returns. The Capital Asset Pricing Model is a financial model that assumes returns on a portfolio are normally distributed. Suppose a portfolio has an average annual return of 15.3% (i.e. an average gain of 15.3%) with a standard deviation of 31%. A return of 0% means the value of the portfolio doesn't change, a negative return means that the portfolio loses money, and a positive return means that the portfolio gains money. Round all answers to 4 decimal places. What is the cutoff for the highest 17% of annual returns with this portfolio? %

Answer 1

Given,

= 15.3 , = 31

We convert this to standard normal as

P( X < x) = P( Z < x - / )

We have to calculate x such that P( X > x) = 0.17

That is

P( X< x ) = 0.83

P( Z < x - / ) = 0.83

From the Z table, z-score for the probability of 0.83 is 0.9542

x - / = 0.9542

x - 15.3 / 31 = 0.9542

x = 44.88%