A stock has an annual return of 13 percent and a standard de

A stock has an annual return of 13 percent and a standard deviation of 65 percent. What is the smallest expected loss over the next year with a probability of 1 percent? (Negative value should be indicated by a minus sign. Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. Omit the \"%\" sign in your response.)

Solution

First, we get the z score from the given left tailed area. As          
          
Left tailed area =    0.01      
          
Then, using table or technology,          
          
z =    -2.326347874      
          
As x = u + z * s,          
          
where          
          
u = mean =    13      
z = the critical z score =    -2.326347874      
s = standard deviation =    65      
          
Then          
          
x = critical value =    -138.21   [ANSWER]