In an economy, there are many identically distributed and independent projects with 1
Year of the investment horizon, and the (net) rate of return on each project follows a
Normal distribution, with mean of 8% and standard deviation of 20%. Each project
Requires an initial investment of $1000. (For questions a)-c), you need to use the Normal
Distribution Table in the appendix or you can use Excel or other statistical softwares.)
A) Suppose a bank is to invest in only one project, what is the probability for the bank to
Lose more than half of the initial investment, that is, $500? What is the probability
For the bank to lose more than 10% of the initial investment, that is, $100?
B) Suppose a bank is to invest in two projects, what is the mean and standard deviation
Of the rate of return on this investment? What is the probability for the bank to lose
More than half of the initial investment, that is, $1000? What is the probability for
The bank to lose more than 10% of the initial investment, that is, $200?