Question

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 6.4% and a standard deviation of 8.3%. For the same period, T-bills had an average return of 3.4% and a standard deviation of 3.1%. 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? (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? (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 10.56 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? (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 Probability of return less than -4.18 percent Probability of greater than 10.56 percent

Answer 1

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% Cut 8.3 STATS - Microsoft Excel (Product Activation Failed) File Home Insert Page Layout Formulas Data Review View Add-Ins - 2x Σ AutoSum : A Calibri -11AA = = = Dr Wrap Text General E Copy Fill Z Paste E BI U DA E E s FMerce Center % 4.0 .00 Conditional Format Cell Insert Delete Format Sort & Format Painter Find & Formatting as Table Styles 2 Clear Filter Select Clipboard Font F Alignment Number Styles Cells Editing 0567 N O P Q R T U V W X Y 565 566 567 568 569 LONG TERM CORPORATE BONDS T BILLS 570 AVERAGE RETURN = 6.4 AVERAGE RETURN = 3.4 571 SD = SD = 3.1 572 573 a X= 10 574 PROBABILITY THAT RETURN ON LONG TERM CORPORATE BONDS WILL BE GREATER THAN 10% 33.22% [=1- NORM.DIST(P573,P570,P571,1)] 575 576 577 PROBABILITY THAT RETURN ON LONG TERM CORPORATE BONDS WILL BE LESS THAN 0% 22.03% (=NORM.DIST(P576,P570,P571,1)] 578 579 b X= 10 PROBABILITY THAT RETURN ONT BILLS WILL BE GREATER THAN 10% 1.66% (=1 - NORM.DIST(P579,T570,T571,1)] 581 582 X= 0 583 PROBABILITY THAT RETURN ONT BILLS WILL BE LESS THAN 0% 13.64% (= NORM.DIST(P582,6570,1571,1)] 584 P V FV DIVIDEND EMV MEAN STDV assignment DEAR Sheet2 COV TIME SERIES corr REGRESSION range CAMERA TREND freg_MATRIX INTERVAL, NORMAL HYPOTHIC Rea ferences BO. 120% - DOER 9 * * O ENG 01-12-2019) X= 580 H

X 2 E. Insert = Page Layout STATS - Microsoft Excel (Product Activation Failed) Add-Ins File Home Formulas Data Review View - 2x % Cut Dr General Calibri -11AA = = = BI U DA * Wrap Text Merge Merge & Center Center m Find & SF $ - % % 4:0 .00 8. Insert Delete Format E Copy Paste Format Painter Clipboard 0603 Conditional Format Cell Formatting as Table Styles Styles Σ AutoSum : A Fill 2 Sort & 2 Clear Filter Editing Select Font Alignment Number Cells N р Q R T U V W X Y Z 584 585 C-1 586 X= -4.18 PROBABILITY THAT SUCH LOW RETURN OCCUR 10.12% (=NORM.DIST(P585,P570,P571,1)] 587 588 C-2 X= 10.56 PROBABILITY THAT SUCH HIGH RETURN OCCUR 589 1.05% (=1 - NORM.DIST(P588,7570,T571,1)] 590 591 592 593 594 595 596 597 598 599 600 601 602 603 604 H P EMV MEAN STDV assignment DEAR Sheet2 COV TIME SERIES corr REGRESSION range CAMERA TREND freg_MATRIX V FV DIVIDEND ferences INTERVAL, NORMAL HYPOTHIC BOJ 120% Red 0 2. B 9 * 40 ENG 01-12-2019