The average return for large-cap domestic stock funds over the three years 2009–2011 was 14.4% (AAII Journal, February, 2012). Assume the three-year returns were normally distributed across funds with a standard deviation of 4.4%. a. What is the probability an individual large-cap domestic stock fund had a three-year return of at least 20%? b. What is the probability an individual large-cap domestic stock fund had a three-year return of 10% or less? c. How big does the return have to be to put a domestic stock fund in the top 10% for the three-year period?

Question

The average return for large-cap domestic stock funds over the three years 2009–2011
was 14.4% (AAII Journal, February, 2012). Assume the three-year returns were normally
distributed across funds with a standard deviation of 4.4%.
a. What is the probability an individual large-cap domestic stock fund had a three-year
return of at least 20%?
b. What is the probability an individual large-cap domestic stock fund had a three-year
return of 10% or less?
c. How big does the return have to be to put a domestic stock fund in the top 10% for the
three-year period?

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