Problem 10-17 Return Distributions [LO 3] Series Average return What range of re

Question

Problem 10-17 Return Distributions [LO 3]

  Series

Average return

What range of returns would you expect to see 68 percent of the time for long-term corporate bonds?(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).)

What about 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).)

Explanation / Answer

1)

For 68% probability, Range is +-1SD.

Range = average return – 1 SD to average return + 1 SD

                = 0.062 – 1 x 0.095 to 0.062 + 1 x 0.095

                = -3.30% to 15.70%

2)

For 95% probability,

Range is +-2SD.

Range = average return – 2 SD to average return + 2 SD

                = 0.062 – 2 x 0.095 to 0.062 + 2 x 0.095

                = -12.80% to 25.20%

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