Assume That Y Is Normally Distributed $N \left( \mu , \sigma ^ { 2 } \right)$

question 33

Multiple Choice

Assume that Y is normally distributed $N \left( \mu , \sigma ^ { 2 } \right)$ To find $\operatorname { Pr } \left( c _ { 1 } \leq Y \leq c _ { 2 } \right)$ where $c _ { 1 } < c _ { 2 }$ and $d _ { i } = \frac { c _ { i } - \mu } { \sigma }$ , you need to calculate $\operatorname { Pr } \left( d _ { 1 } \leq Z \leq d _ { 2 } \right) =$

• A) \(\Phi \left( d _ { 2 } \right) - \Phi \left( d _ { 1 } \right)\)
• B) \(\Phi ( 1.96 ) - \Phi ( - 1.96 )\)
• C) \(\Phi \left( d _ { 2 } \right) - \left( 1 - \Phi \left( d _ { 1 } \right) \right)\)
• D) \(1 - \left( \Phi \left( d _ { 2 } \right) - \Phi \left( d _ { 1 } \right) \right)\)

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Definitions:

Nondiversifiable Risk

A type of risk that affects all investments across the market and cannot be eliminated through diversification.

Diversifiable Risk

A type of investment risk that can be reduced or eliminated in a portfolio through diversification, as it is not correlated with market movements.

Risk Premium

The extra return expected by an investor for holding a risky asset, over and above the risk-free rate.

Discount Rate

The interest rate used in calculating the present value of future cash flows. It reflects the time value of money and risk.