Suppose the returns on an asset are normally distributed. Suppose the historical

Question

Suppose the returns on an asset are normally distributed. Suppose the historical average annual return for the asset was 5.1 percent and the standard deviation was 14.5 percent.

What is the probability that your return on this asset will be less than -8.1 percent in a given year? Use the NORMDIST function in Excel(R) to answer this question.

What range of returns would you expect to see 95 percent of the time?

What range would you expect to see 99 percent of the time?

What range of returns would you expect to see 95 percent of the time?

What range would you expect to see 99 percent of the time?

Explanation / Answer

Range of Population mean with 95% confidence=Mean-/+ Square Root of Standard Deviation*Z factor -2.36346 12.56346 Range of Population mean with 99% confidence=Mean-/+Square Root of Standard Deviation*Z factor -4.57203 14.77203 Mean=5.1 SD=14.5 Z at 95%=1.96 z at 99%=2.54

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