An investor wants to buy a condominium in florida. The vlaue of her portfolio is currently $1,000,000 and she needs $100,000 in one year for the down payment. She doesn’t mind decreasing her capital as long she has $950,000 remaining in her portfolio after the down payment is made. she is considering two new portfolios for her holdings. Expected Annual Return Standard deviation of returns P1 17% 15% P2 12% 10% According to Roy’s safety first criterin, the portfolio she would prefer and the probability that this safety-first optimal portfolio will produce a return of less than 2%(assuming returns are normallu distributed) are : Optimal Port Probability < 2% A> P1 32% B> P1 16% C> P2 32% D> P2 16% schweser’s answer P1 and 32% and I got P1 and 16%.
this question gets posted every day you choose A because of roy’s SFR annual rate of return is 17%, standard deviation is 15% one standard deviation is 68%, so with 32% left in both tails there is 16% in either tai
supersharpshooter Wrote: ------------------------------------------------------- > this question gets posted every day > > you choose A because of roy’s SFR > > annual rate of return is 17%, standard deviation > is 15% > > one standard deviation is 68%, so with 32% left in > both tails there is 16% in either tail …which would make the answer B. The question asks what the probability of less than 2%, so what is the probability in the left tail??? 16%