Suppose the returns on long-term corporate bonds and T-bills are normally distributed. Assume for a certain time period, long-term corporate bonds had an average return of 6.5 percent and a standard deviation of 8.5 percent. For the same period, T-bills had an average return of 3.3 percent and a standard deviation of 3.1 percent. Use the NORMDIST function in Excel® to answer the following questions: a. What is the probability that in any given year, the return on long-term corporate bonds will be greater than 10 percent? Less than 0 percent? Note: Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16. b. What is the probability that in any given year, the return on T-bills will be greater than 10 percent? Less than 0 percent? Note: Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16. c. In 1979, the return on long-term corporate bonds was -4.18 percent. How likely is it that such a low return will recur at some point in the future? T-bills had a return of 10.38 percent in this same year. How likely is it that such a high return on T-bills will recur at some point in the future? Note: Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16. a. Probability of return greater than 10 percent Probability of return less than 0 percent b. Probability of return greater than 10 percent Probability of return less than 0 percent c. Probability of return less than -4.18 percent Probability of greater than 10.38 percent % % % % % %
Suppose the returns on long-term corporate bonds and T-bills are normally distributed. Assume for a certain time period, long-term corporate bonds had an average return of 6.5 percent and a standard deviation of 8.5 percent. For the same period, T-bills had an average return of 3.3 percent and a standard deviation of 3.1 percent. Use the NORMDIST function in Excel® to answer the following questions: a. What is the probability that in any given year, the return on long-term corporate bonds will be greater than 10 percent? Less than 0 percent? Note: Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16. b. What is the probability that in any given year, the return on T-bills will be greater than 10 percent? Less than 0 percent? Note: Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16. c. In 1979, the return on long-term corporate bonds was -4.18 percent. How likely is it that such a low return will recur at some point in the future? T-bills had a return of 10.38 percent in this same year. How likely is it that such a high return on T-bills will recur at some point in the future? Note: Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16. a. Probability of return greater than 10 percent Probability of return less than 0 percent b. Probability of return greater than 10 percent Probability of return less than 0 percent c. Probability of return less than -4.18 percent Probability of greater than 10.38 percent % % % % % %
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:Suppose the returns on long-term corporate bonds and T-bills are normally distributed. Assume for a certain time period,
long-term corporate bonds had an average return of 6.5 percent and a standard deviation of 8.5 percent. For the same
period, T-bills had an average return of 3.3 percent and a standard deviation of 3.1 percent. Use the NORMDIST function in
Excel to answer the following questions:
a. What is the probability that in any given year, the return on long-term corporate bonds will be greater than 10
percent? Less than 0 percent?
Note: Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places,
e.g., 32.16.
b. What is the probability that in any given year, the return on T-bills will be greater than 10 percent? Less than 0
percent?
Note: Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places,
e.g., 32.16.
c. In 1979, the return on long-term corporate bonds was -4.18 percent. How likely is it that such a low return will recur at
some point in the future? T-bills had a return of 10.38 percent in this same year. How likely is it that such a high return
on T-bills will recur at some point in the future?
Note: Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places,
e.g., 32.16.
a. Probability of return greater than 10 percent
Probability of return less than 0 percent
b. Probability of return greater than 10 percent
Probability of return less than 0 percent
c. Probability of return less than -4.18 percent
Probability of greater than 10.38 percent
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