Question

A stockbroker has kept a daily record of the value of a particular stock over the years and finds that prices of the stock form a normal distribution with a mean of $8.52 with a standard deviation of $2.38. The stock price beyond which 0.05 of the distribution falls is _________.

Answer 1

$12.43

Explanation:

Given :

Mean = $8.52

Standard deviation, = $2.38

Stock price which falls beyond 0.05 of the distribution is at the 95th percentile

The 95th percentile distribution has a Pvalue of 1.645 (standard normal table)

We obtain the value of x, with z = 1.645

Using the Zscore relation :

Zscore = (score - mean) / standard deviation

1.645 = (score - 8.52) / 2.38

Cross multiply :

1.645 * 2.38 = score - 8.52

3.9151 = score - 8.52

Score = 8.52 + 3.9151

Score = $12.4351

Stock price beyond 0.05 is $12.43