Question

4.8 CAPM. The Capital Asset Pricing Model (CAPM) is a nancial model that assumes returns on a portfolio are normally distributed. Suppose a portfolio has an average annual return of 14.7% (i.e. an average gain of 14.7%) with a standard deviation of 33%. A return of 0% means the value of the portfolio doesn't change, a negative return means that the portfolio loses money, and a positive return means that the portfolio gains money. (a) What percent of years does this portfolio lose money, i.e. have a return less than 0%

Answer 1

32.64%

Step-by-step explanation:

Given Data:

Average annual return (mean) = 14.7%

standard deviation = 33%

A) what percent of years does the portfolio lose money ( ?% < 0% )

The percentage of the year that the portfolio loses money = 32.64%

attached below is a detailed solution

The value of P( Z < -0.45 ) = 0.32636 . This value is gotten from standard normal table