Question

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 15.5% (i.e. an average gain of 15.5%) with a standard deviation of 43%. 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 2 decimal places.

a. What percent of years does this portfolio lose money, i.e. have a return less than 0%? %

b. What is the cutoff for the highest 24% of annual returns with this portfolio

Answer 1