The average stock price for companies making up the S&P 500 was 30 dollars, and the standard

devia
(BusinessWeek, Special Annual Issue).
Assume the stock prices are normally distributed.

a. What is the probability that a company will have a stock price of at least 40 dollars?
b. What is the probability that a company will have a stock price no higher than 20 dollars?
c. How high does a stock price have to be put a company in the top 10%
d. Create a probability histogram illustrating the given problem.

REQUIREMENT A
Using Excel Function: Using Formula: So,
Stock price for companies P(x ≥ 40) P (x ≥ 40) is P(z > 1.22)
Mean $ 30.00 𝑧= (𝑥−𝜇)/𝜎 1−𝑃(𝑧<1.22)
SD $ 8.20 =1−0.8888
Stock price 1 $ 40.00 𝑧= =𝟎.𝟏𝟏𝟏𝟐
Probability of stock price (40−30)/8.20 or
P(X≥40) 0.1113 𝟏𝟏.𝟏𝟐%
or 𝒛=𝟏.𝟐𝟐
11.13%

EXPLANATION: There is 0.1113 or 11.13% probability that the company will have stock price at
least $40.

REQUIREMENT B
Using Excel Function: Using Formula: So,
Stock price for companies P(x ≤ 20) P(x < 20) is P(z <- 1.22)
Mean $ 30.00 𝑧= (𝑥−𝜇)/𝜎 𝑃(𝑧<− 1.22)
SD $ 8.20 =𝟎.𝟏𝟏𝟏𝟐
Stock price 2 $ 20.00 𝑧= or
Probability of stock price (20−30)/8.2 𝟏𝟏.𝟏𝟐%
P(X<20) 0.1113 0𝒛=𝟏.𝟐𝟐
or
0.1113

EXPLANATION: There is 0.1113 or 11.13% probability that the company will have a stock price of no
higher than $20.

REQUIREMENT C
Using Excel Function: Using Formula:
Stock price for companies Top 10%
Mean $ 30.00 Area to the left= 0.90
SD $ 8.20 z = 1.28 (0.90)
Percent 90% 𝑧= (𝑥−𝜇)/𝜎
 $ 40.5087 𝑥= 𝑧𝜎+𝜇
Stock price to put a 𝑥=1.28(8.20)+30
or
company in the top 10%.
$ 40.51 𝒙=$𝟒𝟎.𝟓𝟎

EXPLANATION: The company should have $40.51 stock price to put a company in the top 10%.

REQUIREMENT D
Stock price for companies
Mean $ 30.00
SD $ 8.20

Probability Distribution
x P(x) Probability Histogram of the Average Stock
0 0.0001 0.00013 0.45000

10 0.0074 0.00724 0.40000

20 0.1113 0.10383 0.35000

30 0.5000 0.38880 0.30000

40 0.8887 0.38868 Probability 0.25000

50 0.9926 0.10396 0.20000

60 0.9999 0.00724 0.15000

70 1.0000 0.00013 0.10000
80 1.0000 0.00025 0.05000
90 1.0000 - 0.00025 -
100 1.0000 0.00000 0 10 20 30 40 50 60 70
-0.05000

Stock Price
ollars, and the standard deviation was 8.20 dollars.

t 40 dollars? more than

than 20 dollars? less than
20% = - 1.28

0) is P(z > 1.22)

𝑧<1.22)
.8888
𝟏𝟏𝟏𝟐

𝟏𝟐%

will have stock price at

) is P(z <- 1.22)

1.22)

will have a stock price of no

ompany in the top 10%.

stogram of the Average Stock Price

0 30 40 50 60 70 80 90 100

Stock Price