Suppose the average return on an asset is 11.6 percent and the standard deviatio

Question

Suppose the average return on an asset is 11.6 percent and the standard deviation is 20.1 percent. Further assume that the returns are normally distributed. Use the NORMDIST function in Excel® to determine the probability that in any given year you will lose money by investing in this asset.

Suppose the average return on an asset is 11.6 percent and the standard deviation is 20.1 percent. Further assume that the returns are normally distributed. Use the NORMDIST function in Excel® to determine the probability that in any given year you will lose money by investing in this asset.

Explanation / Answer

=NORMDIST(0,11.6,20.1,TRUE)

Probability =28.19%

Using the z-statistic,

we find:z = (X – µ)/

z = (0% – 11.6%)/20.1% = –0.58

Pr(R=0) 28.19%

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