SOLUTION: All the major stock market indexes posted heavy losses in 2008. The mean one-year return for stocks in the S&P 500, a group of 500 very large companies, was -38.5%. The mean one ye

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Question 469817: All the major stock market indexes posted heavy losses in 2008. The mean one-year return for stocks in the S&P 500, a group of 500 very large companies, was -38.5%. The mean one year return for the NASDAQ, a group of 3,200 small and medium sized companies, was -40.5%. Historically, the one year return are approximately normal, the standard deviation in the S&P 500 is approximately 20%, and the standard deviation in the NASDAQ is approximately 30%. a. What is the probability that a stock in the S&P 500 gained value in 2008? b. What is the probability that a stock in the S&P 500 gained 10% more? c. What is the probability that a stock in the S&P 500 lost 50% more in 2008? d. What is the probability that a stock in the S&P 500 lost 60% more? e. Repeat (a) through (d) for a stock in the NASDAQ. f. Write a short summary on your findings. Be sure to include a discussion of the risks associated with a large standard deviation.
Answer by stanbon(75887) About Me  (Show Source):
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All the major stock market indexes posted heavy losses in 2008. The mean one-year return for stocks in the S&P 500, a group of 500 very large companies, was -38.5%. The std = 20%
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The mean one year return for the NASDAQ, a group of 3,200 small and medium sized companies, was -40.5%. The std is 30%
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a. What is the probability that a stock in the S&P 500 gained value in 2008?
z(0) = (0-(-38.5))/20 = 1.925
P(x > 0) = P(z > 1.925 = 0.0271
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b. What is the probability that a stock in the S&P 500 gained 10% more?
Find the z-value of 10
Find the probability of z being >= that z-value
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c. What is the probability that a stock in the S&P 500 lost 50% more in 2008?
Find the z-value of -50
Find the probability of z being <= that z-value
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d. What is the probability that a stock in the S&P 500 lost 60% more?
? more than what?
e. Repeat (a) through (d) for a stock in the NASDAQ. f. Write a short summary on your findings. Be sure to include a discussion of the risks associated with a large standard deviation.
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Cheers,
Stan H.