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?

Question
Asked Oct 30, 2019

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?

check_circleExpert Solution
Step 1

It is given that the mean and standard deviation are 14.7 and 33, respectively.

Step 2

The required percent is ob...

x-u0-14.7
P(x <0)P
33
=P(-0.45)
-0.3264
32.64%
help_outline

Image Transcriptionclose

x-u0-14.7 P(x <0)P 33 =P(-0.45) -0.3264 32.64%

fullscreen

Want to see the full answer?

See Solution

Check out a sample Q&A here.

Want to see this answer and more?

Solutions are written by subject experts who are available 24/7. Questions are typically answered within 1 hour*

See Solution
*Response times may vary by subject and question
Tagged in

Math

Statistics

Advanced Topics in Statistics

Related Statistics Q&A

Find answers to questions asked by student like you

Show more Q&A add
question_answer

Q: I need help solving as much parts as possible pls

A: Note:Hey, since there are multiple sub-parts question posted, we will answer first three sub-parts a...

question_answer

Q: Births are approximately uniformly distributed between the 52 weeks of the year. 1 1 sxs53 f(x) = 52

A: Solution:Continuous uniform distribution:A random variable X is said to have the rectangular distrib...

question_answer

Q: need answers to questions 9 and 10

A: The tree diagram for the three rolls of the die letting C= {composite number rolled} and N={composit...

question_answer

Q: A pharmaceutical company receives large shipments of ibuprofen tablets and uses this acceptance samp...

A: It is given that X ~B(22,0.06).The PMF of binomial distribution is given by,

question_answer

Q: The U.S. Census bureau serves as the leading source of quantitative data about the nation’s people a...

A: 1. From the given information,

question_answer

Q: The caffeine content (in mg) was examined for a random sample of 50 cups of black coffee dispensed b...

A: Given sample size of black coffee cups n = 50Caffeine content mean = 110mgStandard deviation = 7.1 m...

question_answer

Q: What does it mean for a regression line to be the "best-fit" line.

A: The form of the simple linear regression line is given by,

question_answer

Q: Sam computed a 90% confidence interval for μ from a specific random sample of size n. He claims that...

A: Sam computed a 90% confidence interval for µ from a specific random sample of size n.

question_answer

Q: The​ three-year recidivism rate of parolees in a certain state is about 20​%; that​ is, 20​% of paro...

A: Solution:Binomial distribution:The binomial distribution gives the probability of number of successe...