Discuss the risks associated with a large standard deviation


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Q: The major stock market indexes had mixed results in 2011. The mean one-year return for stocks in the S&P 500, a group of 500 very large companies, was 0.00%. The mean one-year return for the NASDAQ, a group of 3,200 small and medium-sized companies, was -1.8% Historically, the one-year returns are approximately normally distributed, the standard deviation in the S&P 500 is approximately 20%, and the standard deviation in the NASDAQ is approximately 30%.

a. What is the probability that a stock in the S&P 500 gained value in 2011?

b. What is the probability that a stock in the S&P 500 gained 10% or more in 2011?

c. What is the probability that a stock in the S&P 500 lost 20% or more in 2011?

d. What is the probability that a stock in the S&P 500 lost 40% or more in 2011?

e. Repeat a - d for a stock in the NASDAQ.

f. Discuss the risks associated with a large standard deviation.

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Basic Statistics: Discuss the risks associated with a large standard deviation
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