Q:
XYZ Company stocks have an expected return of 12% and a standard deviation of 8%. Assuming that the returns of this company are a continuous random variable that is normally distributed, what is the probability that the returns will be -1.2% or less?
A) 45%
B) 1.65%
C) 10%
D) 5%
A:

The correct answer is: D)
First, transform the actual value of this outcome (-1.2%) into its standardized z-score:
Zx= [(X - ux) ÷ σx] = [(-1.2 - 12.0) ÷ 8] = -1.65
Using the Normal Rule, candidates should realize that approximately 90% of the outcomes are expected to occur within 1.65 standard deviations of the mean. This would mean that 45% (half of 90%) of the observations must lie within the mean and -1.65 standard deviations away from the mean. If this is so, then 5% of all the observations must lie below -1.65 standard deviations away from the mean.


RELATED FAQS

  1. When a floor broker asks a specialist, “How’s PDQ?” ...

    The correct answer is d) When the specialist gave the floor broker the quote of “59.20 to 35; 6 by 11,”  the quote meant ...
  2. A person purchases stock XYZ (an Over The Counter stock) from a company who is also ...

    The correct answer is c When the firm is a market maker in the stock then it must act as a principle. Principal is the main ...
  3. An individual made a lump-sum deposit into a variable annuity of $25,000 ...

    The correct answer is c). Early withdrawal from a non-qualified annuity--prior to age 59½, except for death or disability, ...
  4. A church that a registered representative (RR) attends plans to raise the funds necessary ...

    The correct answer is c) Although church bonds are normally considered to be exempt securities, the RR is obligated, by NASD ...
RELATED TERMS
  1. No results found.

You May Also Like

Related Articles
  1. No results found.
Trading Center