Show your work concisely. If you utilize Excel functions or online calculators specify the function/calculator and ALL inputs. You may find the reading on probability fundamentals useful in answering c) and d)
The daily return of a certain stock is normally distributed with a mean of 0.30% and a standard deviation of 2.50%.
a. (already solved on the quiz) Find the probability that the return on a randomly selected day is negative. Provide a simple picture of the normal distribution and clearly label what the probability found refers to.
Here we want to find out the probability that,
P(X < 0) where X~Normal(0.30,2.50).
Using the Minitab software, Graph-> Porbability distribution plot->View probability, the obtained output is given below,
We can see that the probability is 0.4522, this is the probability of making a negative return on that selected day.
b. Find the level, L, such that there is a 20% chance that the daily return on a randomly selected day exceeds L. Provide a simple picture of the normal distribution and clearly label the value found on the picture.
The obtained output is given below (we can also do it using excel command NORM.INV(0.8,0.3,2.5)),
Thus the required value i.e. L = 2.404.
c. Find the probability that t...