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You are an investment manager for a hedge fund. There are currently a lot of rumours going around about the “hot” property market on the Gold Coast, and some of your investors want you to set up a fund specialising in Surfers Paradise apartments.
You do some research and discover that the average Surfers Paradise apartment currently sells for $1.1 million. But there are huge price differences between newer apartments and the older ones left over from the 1980’s boom. This means prices can vary a lot from apartment to apartment. Based on sales over the last 12 months, you calculate the standard deviation to be $385 000.
There is an apartment up for auction this Saturday, and you decide to attend the auction.
Tasks (show your workings):
A. a. Assuming a normal distribution, what is the probability that apartment will sell for over $2 million?
B. b. What is the probability that the apartment will sell for over $1 million but less than $1.1 million?
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