The expected return and standard deviationof returns of General Mills common stock over the next year are estimated to be 20 percent and 12 percent, respectively. Assume that the returns are approximately normally distributed.
a. Determine the probabilityof incurring a loss (negative rate of return) from investing in this stock.
b. Determine the probability of earning a rate of return less than the risk-free rate of 6 percent.
The solution file is attached.
μ = 20 and σ = 12
(a) z = (x – μ)/σ z = …
Neat and detailed solution to both parts of the question.