Explore BrainMass

Explore BrainMass

    Normal probability distribution of investments

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    An investment broker reports that the yearly returns on common stocks are approximately normally distributed with a mean return of 12.4 percent and a standard deviation of 20.6 percent. On the other hand, the firm reports that the yearly returns on tax-free municipal bonds are approximately normally distributed with a mean return of 5.2 percent and a standard deviation of 8.6 percent.

    (a) Use the investment broker's report to estimate the maximum yearly return that might be obtained by investing in tax-free municipal bonds. (Round your answer to the nearest whole percent.)

    Maximum yearly return ___%

    (b) Find the probability that the yearly return obtained by investing in common stocks will be higher than the maximum yearly return that might be obtained by investing in tax-free municipal bonds. (Round your answer to 4 decimal places.)

    P = ____

    © BrainMass Inc. brainmass.com June 4, 2020, 4:22 am ad1c9bdddf
    https://brainmass.com/statistics/descriptive-statistics/normal-probability-distribution-investments-558127

    Solution Preview

    Detailed explanation of the answer is attached. If you still need any clarification please message me. Thank you for asking BrainMass.

    Let X denotes the yearly returns on common stocks and Y denotes the yearly returns on tax-free municipal bonds.
    It is given that,
    X is normally distributed with mean μ = 12.4 and standard deviation σ = 20.6.
    Y is ...

    Solution Summary

    Normal probability distributions of investments are examined. The maximum yearly return that might be obtained by investing in tax-free municipal bonds are given.

    $2.19

    ADVERTISEMENT