A Stock Has an Expected Rate of Return of 14

question 24

Multiple Choice

A stock has an expected rate of return of 14.2 percent and a standard deviation of 23.4 percent.Which one of the following best describes the probability that this stock will lose more than 1/3 of its value in any one year?

• A)Less than .1%
• B)Approximately 2.25%
• C)Approximately 1%
• D)Less than .26%
• E)Approximately 4.60%

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Definitions:

Compound Interest

A method of interest calculation on a loan or deposit that involves both the initial principal and the cumulative interest from earlier periods.

Initial Investment

The initial amount of money invested in a project, property, or business to start operations.

Required Rate

The minimum return an investor expects to achieve when investing in a project or security.

Annuity

A financial product that provides a series of payments at fixed intervals, often used for retirement savings or income generation.