Suppose You Own a Risky Asset with an Expected Return

question 45

Multiple Choice

Suppose you own a risky asset with an expected return of 12% and a standard deviation of 20%. If the returns are normally distributed, the approximate probability of receiving a return greater than 72%, or less than -48% is:

• A) greater than 99%
• B) greater than 95%
• C) less than 5%
• D) less than 1%

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Definitions:

Positive Economics

A branch of economics that focuses on describing and explaining the economic world as it is, not as it should be.

Operation of Systems

The process of managing and executing the functions and activities of interconnected and interdependent components to achieve specified goals.

Economic Behavior

The study of how individuals, institutions, and societies make decisions under constraints of resources, including analysis of market and non-market behaviors.

Normative Statement

An opinion-based statement that reflects beliefs about what is good or desirable and prescribes or recommends specific policies.