[Solution Library] According to Investment Digest ("Diversification and the Risk/Reward Relationship," Winter 1994, 1-3), the mean of the annual return for
Question: According to Investment Digest ("Diversification and the Risk/Reward Relationship," Winter 1994, 1-3), the mean of the annual return for common stocks from 1926 to 1992 was 15.4%, and the standard deviation of the annual return was 24.5%. During the same 67-year time span, the mean of the annual return for long-term government bonds was 5.5%, and the standard deviation was 6.0%. The article claims that the distributions of annual returns for both common stocks and long-term government bonds are bell-shaped and approximately symmetric. Assume that these distributions are distributed as normal random variables with the means and standard deviations given previously.
- Find the probability that the return for common stocks will be greater than 0%.
- Find the probability that the return for common stocks will be less than 20%.
Hint: There are many ways to attack this problem in the HW. If you would like the normal distribution table so you can draw the pictures then bookmark this site:
http://www.statsoft.com/textbook/sttable.html
Deliverable: Word Document 