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Portfolio returns. The Capital Asset Pricing Model is a financial model that assumes returns on a...

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Basic Math

Portfolio returns. The Capital Asset Pricing Model is afinancial model that assumes returns on a portfolio are normallydistributed. Suppose a portfolio has an average annual return of11.1% (i.e. an average gain of 11.1%) with a standard deviation of40%. A return of 0% means the value of the portfolio doesn'tchange, a negative return means that the portfolio loses money, anda positive return means that the portfolio gains money. Round allanswers to 4 decimal places.

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 13% of annual returns withthis portfolio?

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