Explanation:
A 29% return is 3 standard deviations above the mean of 17% (17% + 3*4% = 29%). The probability of getting 3 standard deviations above the mean is 1 - Prob(Z≤3) = 1 - 0.9987 = 0.0013 or 0.13%. Note: 0.9987 is obtained from the Z-table.
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A portfolio's expected return is 17% and its standard deviation is 4%. If the returns are normally distributed, then what is the probability that the returns will be greater than 29%? Use the following standard normal table:
A
0.0013
B
0.01
C
0.13
D
0.0525
