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 95 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 99 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

What range of returns would you expect to see 95 percent of the time for long-term corporate bonds?

The range of returns you would expect to see 95 percent of the time is the mean plus or minus 2 standard deviations.

Thus for Long term corporate bonds, Average(Mean) rerturns= 5.9%

standard deviation=9.2%

95% level: Returns= mean ± 2SD 5.9% ± 2(9.2%) = –12.50% to 24.30%

Expected range of returns= -12.5% to 24.30%

What about 99 percent of the time?

The range of returns you would expect to see 99 percent of the time is the mean plus or minus 3 standard deviations.

99% level: Returns= mean± 3SD = 5.9% ± 3(9.2%) = –21.70% to 33.50%

Expected range of returns= -21.7% to 33.50%

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