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Answer:
The probability that the stock will sell for $85 or less in a year's time is 0.10.
Step-by-step explanation:
Let <em>X</em> = stock's price during the next year.
The random variable <em>X</em> follows a normal distribution with mean, <em>μ</em> = $100 + $10 = $110 and standard deviation, <em>σ</em> = $20.
To compute the probability of a normally distributed random variable we first need to compute the <em>z</em>-score for the given value of the random variable.
The formula to compute the <em>z</em>-score is:
Compute the probability that the stock will sell for $85 or less in a year's time as follows:
Apply continuity correction:
P (X ≤ 85) = P (X < 85 - 0.50)
= P (X < 84.50)
*Use a <em>z</em>-table for the probability.
Thus, the probability that the stock will sell for $85 or less in a year's time is 0.10.
