Hi, any help with this question would be greatly appreciated. Thank you. Suppose

Question

Hi, any help with this question would be greatly appreciated. Thank you.

Suppose the returns on long-term corporate bonds and T-bills are normally distributed. Assume for a certain time period, long-term corporate bonds had an average return of 5.6% and a standard deviation of 9.1%. For the same period, T-bills had an average return of 4.1% and a standard deviation of 3.3%. Use the NORMDIST function in Excel® to answer the following questions:

a. What is the probability that in any given year, the return on long-term corporate bonds will be greater than 10 percent? Less than 0 percent? (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)

b. What is the probability that in any given year, the return on T-bills will be greater than 10 percent? Less than 0 percent? (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)

c. In one year, the return on long-term corporate bonds was 4.3 percent. How likely is it that such a low return will recur at some point in the future? T-bills had a return of 10.42 percent in this same year. How likely is it that such a high return on T-bills will recur at some point in the future? (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)

Probability of return greater than 10 percent % Probability of return less than 0 percent %

Explanation / Answer

1.=1-NORMDIST(10%,5.6%,9.1%,TRUE)=31.44%

2. =NORMDIST(0%,5.6%,9.1%,TRUE)=26.92%

3. =1-NORMDIST(10%,4.1%,3.3%,TRUE)=3.69%

4. =NORMDIST(0%,4.1%,3.3%,TRUE)=10.70%

5. =NORMDIST(-4.3%,5.6%,9.1%,TRUE)=13.83%

6. =1-NORMDIST(10.42%,5.6%,9.1%,TRUE)=29.82%

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