A portfolio has an expected mean return of 8% and standard deviation of 14%. The probability that its return falls between 8% and 11% is closest to:
- 8.5%.
- 14.8%.
- 58.3%.
A is correct. P (8% ≤ Portfolio return ≤ 11%) = N (Z corresponding to 11%) − N (Z corresponding to 8%). For the first term, NORM.S.DIST((11% − 8%)/14%) = 58.48%. To get the second term immediately, note that 8% is the mean, and for the normal distribution, 50% of the probability lies on either side of the mean. Therefore, N (Z corresponding to 8%) must equal 50%. So, P (8% ≤ Portfolio return ≤ 11%) = 0.5848 − 0.50 = 0.0848, or approximately 8.5%.
Can anyone help with this question ? Thank you very much !
I used Kaplan but I cant see any part explaining about this. I am utterly lost
And why is the solution using NORM.S.DIST ? Since on our BA II Plus we are unable to use this function?