A stock has returns of 18 percent, 15 percent, -21 percent, and 6 percent for the past four years

A stock has an expected rate of return of 13 percent and a standard deviation of 21 percent. Which one of the following best describes the probability that this stock will lose at least half of its value in any one given year?    A.  0.1 percent B.  0.5 percent C.  1.0 percent D.  2.5 percent E.  5.0 percent Lower bound of 99 percent range = 0.13 - (3 × 0.21) = -50 percent Probability of losing 50 percent or more in any one year is 0.5 percent.

72.

A stock has returns of 18 percent, 15 percent, -21 percent, and 6 percent for the past four years. Based on this information, what is the 95 percent probability range of returns for any one given year?    A.  -13.56 to 20.56 percent B.  -24.60 to 31.80 percent C.  -31.00 to 40.00 percent D.  -47.68 to 54.68 percent E.  -71.73 to 71.73 percent Average return = (0.18 + 0.15 - 0.21 + 0.06)/4 = 0.045 σ = (0.18 - 0.045)2 + (0.15 - 0.045)2 + (-0.21 - 0.045)2 + (0.06 - 0.045)2] = .177482 95% probability range = 0.045 ± (2 × 0.177482) percent = -31.00 to 40.00 percent

73.

Your friend is the owner of a stock which had returns of 25 percent, -36 percent, 1 percent, and 16 percent for the past four years. Your friend thinks the stock may be able to achieve a return of 50 percent or more in a single year. Based on these returns, what is the probability that your friend is correct?    A.  less than 0.5 percent B.  greater than 0.5 percent but less than 1.0 percent C.  greater than 1.0 percent but less than 2.5 percent D.  greater than 2.5 percent but less than 16 percent E.  greater than 16.0 percent Average return = (0.25 - 0.36 + 0.01 + 0.16)/4 = 0.015 σ = √[1/(4 - 1)] [(0.25 - 0.015)2 + (-0.36 - 0.015)2 + (0.01 - 0.015)2 + (0.16 - 0.015)2] = 0.2689 Upper end of 68 percent range = 0.015 + (1 × 0.2689) = 28.39 percent Upper end of 95 percent range = 0.015 + (2 × 0.2689) = 55.28 percent The probability of earning at least 50 percent in any one year is greater than 2.5 percent but less than 16 percent.