Final answer:
The lower boundary of the stock's return distribution is calculated by subtracting 1.65 times the standard deviation from the expected daily return, resulting in a lower boundary of -1.45%.
Step-by-step explanation:
The lower boundary of the probability distribution of returns, based on 1.65 standard deviations from the expected outcome for a stock with an expected daily return of .2 percent and a standard deviation of daily returns of 1 percent, can be calculated using the concept of standard deviation and the expected return.
The lower boundary of the stock's return = Expected return - (Standard deviation × number of standard deviations) = 0.002 - (0.01 × 1.65) = 0.002 - 0.0165 = -0.0145 or -1.45%.
To calculate this, you subtract 1.65 times the standard deviation of the daily return from the mean or expected daily return. This gives you the lower boundary which means there's a small probability of the stock returning a value below this threshold.