Skewness 1 answer below »
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Investment A has an expected return of $25 million and investment B has an expected return of $5 million. Market risk analysts believe the standard deviation of the return from A is $10 million, and for B is $30 million (negative returns are possible here).
A. If you assume returns follow a normal distribution, which investment would give a better chance of getting at least a $40 million return? Explain
B. How could your answer to part a) change if you knew returns followed a skewed distribution instead of a normal distribution? Explain briefly
For part B, I think the answer will be different if the distribution has positive skewness or negative skewness.
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