3.8 CAPM: The Capital Asset Pricing Model (CAPM) is a financial model that assumes returns on a portfolioare normally distributed. Suppose a portfolio has an average annual return of 14.7% (i.e. an average gain of14.7%) with a standard deviation of 33%. A return of 0% means the value of the portfolio doesn't change, anegative return means that the portfolio loses money, and a positive return means that the portfolio gainsmoney.(please round answers to within one hundredth of a percent)(a) What percent of years does this portfolio lose money, i.e. have a return less than 0%?%(b) What is the cutoff for the highest 15% of annual returns with this portfolio?%

Let X be the random variable defined by returns on a portfolio follows normal distribution with mean…

Answered: (a) What percent of years does this…

(a) What percent of years does this portfolio lose money, i.e. have a return less than 0%? (b) What is the cutoff for the highest 15% of annual returns with this portfolio? %

A First Course in Probability (10th Edition)

10th Edition

ISBN:9780134753119

Author:Sheldon Ross

Publisher:Sheldon Ross

Chapter1: Combinatorial Analysis

Section: Chapter Questions

Problem 1.1P: a. How many different 7-place license plates are possible if the first 2 places are for letters and...

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Question

3.8 CAPM: The Capital Asset Pricing Model (CAPM) is a financial 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.
(please round answers to within one hundredth of a percent)
(a) What percent of years does this portfolio lose money, i.e. have a return less than 0%?
%
(b) What is the cutoff for the highest 15% of annual returns with this portfolio?
%

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