A portfolio's return is normally distributed with an expected return of 10%, and a standard deviation of 20%. What is the probability that the return will be between 0% and 5%?
A. 8%
B. 9%
C. 10%
D. 11%
Answer:B
With a mean 10% and standard deviation of 20%, the value of 0% would be (0%-10%)/20% or -0.5 standard deviation from the mean, and the value of 5% would be (5%-10%)/20% or -0.25 standard deviations from the mean. By referring to the distribution tables, we can ascertain how much of the distribution lies under these points. The area between the mean and 5% is 0.0987, and 0.1915 between the mean and 0%. The difference of 0.0928(approximately 9%) is the value of the distribution which lies between 0% and 5%.