The Capital Asset Pricing Model (CAPM) is a financial model that assumes returns on a portfolio are normally distributed. Suppose a portfolio has an average annual return of 14.7% (i.e. an average gain of 14.7%) with a standard deviation of 33%. A return of 0% means the value of the portfolio doesn’t change, a negative return means that the portfolio loses money, and a positive return means that the portfolio gains money.What percent of years does this portfolio lose money, i.e. have a return less than 0%? What is the cutoff for the highest 15% of annual returns with this portfolio?
The Capital Asset Pricing Model (CAPM) is a financial model that assumes returns on a portfolio are normally distributed. Suppose a portfolio has an average annual return of 14.7% (i.e. an average gain of 14.7%) with a standard deviation of 33%. A return of 0% means the value of the portfolio doesn’t change, a negative return means that the portfolio loses money, and a positive return means that the portfolio gains money.
What percent of years does this portfolio lose money, i.e. have a return less than 0%? What is the cutoff for the highest 15% of annual returns with this portfolio?
It is given that the mean and standard deviation are 14.7 and 33, respectively.
The required percent is ob...
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x-u0-14.7 P(x <0)P 33 =P(-0.45) -0.3264 32.64%
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Advanced Topics in Statistics
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