Question

Suppose the returns on a particular asset are normally distributed. Also suppose the asset had an average return of 11.5% and a standard deviation of 27.4%. Use the NORMDIST function in Excel to determine the probability that in any given year you will lose money by investing in this asset. (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Probability %

Answer 1

The probability of losing money (return being less than 0%) is calculated using NORM.DIST function in Excel :

x = the value you want to test. This is 0%, as we are calculating the probability of the return being less than 0%.

mean = 11.5%. This is the mean of the distribution.

standard_dev = 27.4%. This is the standard deviation of the distribution.

cumulative = TRUE. Entering TRUE in this argument returns the probability that the value will be less than or equal to x.

NORM.DIST is calculated to be 0.3373, or 33.73%.

The probability of losing money in any given year is 33.73%

X for ENORM.DIST(0%,11.5%,27.4%,TRUE) A B C D E F G 0.3373