Suppose the returns on long-term government bonds are normally distributed. Assu

Question

Suppose the returns on long-term government bonds are normally distributed. Assume long-term government bonds have a mean return of 6.7 percent and a standard deviation of 10 percent. Requirement 1: What is the probability that your return on these bonds will be less than 13.3 percent in a given year? Use the NORMDIST function in Excel ® to answer this question. (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places (eg., 32.16).) Probability % Requirement 2: What range of returns would you expect to see 68 percent of the time? (Negative amount should be indicated by a minus sign. Input your answers from lowest to highest to receive credit for your answers. Do not round intermediate calculations. Enter your answers as a percentage rounded to 2 decimal places (e.g., 32.16).) Expected range of returns % to % Requirement 3: What range would you expect to see 95 percent of the time? (Negative amount should be indicated by a minus sign. Input your answers from lowest to highest to receive credit for your answers. Do not round intermediate calculations. Enter your answers as a percentage rounded to 2 decimal places (e.g., 32.16).) Expected range of returns % to %

Explanation / Answer

1)

= NORM.DIST ( -13.3,6.7,10,TRUE) = 0.02275 = 2.28%

2) 68 % range is mean +/- std dev

= 6.7 +/- 10

= -3.3% to 16.7%

3) 95 % range is mean +/- 2 std dev

= 6.7 +/- 20

= -13.3% to 26.7%

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