A stock has an annual return of 12.4 percent and a standard deviation of 33 percent. What is the smallest expected loss over the next year with a probability of 2.5 percent

    Formula : Prob(R <= (Monthly Avg. AR) – [Mini look-for. * SD * (monthly middle)^1/2] = Probability
    So, putting in the values,

    Prob(R<= (0.124/12) – [1.96 * 0.33 * (1/12)^0.5] )= 2.5%

    Prob(R<= 0.0103333 – 0.186715 ) = 2.5%

    Prob(R<= -0.1764) = 2.5%

    So, last look-fored dropping balance the present year with prob. of 2.5% = 17.64%