Question

Assume that the returns from holding small-company stocks are normally distributed. Refer to Figure 12.10 and Table A.5. 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 7 decimal places, e.g., 1616161.) 0.450% a. Probabliity of doubling b. Probability of tripling

Answer 1

a). Doubling of money means a 100% return so z-score will be

z = (100%-mean)/StDev = (100%-16.60%)/31.90% = 2.6144

Probability (using the z-score table or formula) of a 100% return = 0.45%

b). Tripling of money means a 200% return.

z = (200%-16.60%)/31.90% = 5.7492

Probability of a 200% return = 0.0000004%