00:01
So in this question we're told that for a risky fund, the return is normally distributed with a mean of 10 .3 % and a standard deviation of 17 .8%.
00:15
And for the less risky fund, we have a normal distribution with a mean of 4 % and a standard deviation of 6%.
00:26
So in both cases, what we can do is we can define a z value and our z score is going to be r minus 10 .3.
00:36
Divided by 17 .8.
00:40
And that's the z for the risky value.
00:43
The z for the less risky stock is the return minus 4 % divided by 6%.
00:52
So first of all, a1, what's the probability of earning a negative return for each fund? so the probability that the risky fund gives a return less than zero is the probability that z risky is less than minus 10 .3 divided by 17 .8, which is minus 0 .5787.
01:20
And what we can do is we can look that up in a table or using technology.
01:26
So i'm going to use my computer to look this up.
01:32
And this gives me a probability of 0 .2814 to four decimal places.
01:40
Now what about for the less risky fund? well, that's the probability that the z score for the less risky fund is less than minus 4 over 6, which is minus 0 .6667, which i can also look up in on my computer, and that gives me a probability of 0 .2525 to 5 to 4 decimal places...