Explanation:
A 16% return is 1 standard deviation above the mean of 9%, since the standard deviation is 7% (9% + 7% = 16%). The probability of getting a result more than 1 standard deviation above the mean is 1 - Prob(Z≤1) = 1 - 0.8413 = 0.1587 or 15.87%. Note: 0.8413 is obtained from the Z-table.
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A portfolio has an expected return of 9% with a standard deviation of 7%. If the returns are normally distributed, then what is the probability that the return will be greater than 16%? Click here to view the normal distribution table.
A
0.1052
B
0.2241
C
0.1228
D
0.1587