Question

Problem 10-28 Using Probability Distributions [LO 3] 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 5.8% and a standard deviation of 8.9%. For the same period, T-bills had an average return of 4.3% and a standard deviation of 3.1%. 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 −4.7 percent. How likely is it that such a low return will recur at some point in the future? T-bills had a return of 10.62 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.)

Answer #1

Large company stocks 12%
Small company stocks 16.6%
Long term corporate bonds 6.3%
Long term government bonds 6.0%
US treasury bills 3.4%
Inflation 3.0%
a.
What was the average annual return on large-company stock from
1926 through 2016 in nominal terms? (Do not round
intermediate calculations and enter your answer as a percent
rounded to 2 decimal places, e.g., 32.16.)
b.
What was the average annual return on large-company stock from
1926 through 2016 in real terms? (Do not round...

Use the following table: Series Average return Large stocks
11.96 % Small stocks 16.66 Long-term corporate bonds 6.33 Long-term
government bonds 6.10 U.S. Treasury bills 3.93 Inflation 3.10
a. Determine the return on a portfolio that was equally invested
in large-company stocks and long-term corporate bonds. (Do not
round intermediate calculations and enter your answer as a percent
rounded to 2 decimal places, e.g., 32.16.)
b. What was the return on a portfolio that was equally invested
in small stocks...

Suppose the average return on Asset A is 6.5 percent and the
standard deviation is 8.5 percent, and the average return and
standard deviation on Asset B are 3.7 percent and 3 percent,
respectively. Further assume that the returns are normally
distributed. Use the NORMDIST function in Excel® to answer the
following questions.
a.
What is the probability that in any given year, the return on
Asset A will be greater than 10 percent? Less than 0 percent?
(Do not...

Suppose the average return on Asset A is 6.8 percent and the
standard deviation is 8 percent, and the average return and
standard deviation on Asset B are 3.9 percent and 3.3 percent,
respectively. Further assume that the returns are normally
distributed. Use the NORMDIST function in Excel® to answer the
following questions.
a. What is the probability that in any given year, the return on
Asset A will be greater than 10 percent? Less than 0 percent? (Do
not...

Use the following table:
Series
Average return
Large stocks
12.04
%
Small stocks
16.74
Long-term corporate bonds
6.37
Long-term government bonds
6.10
U.S. Treasury bills
3.97
Inflation
3.10
a. Determine the return on a portfolio that was
equally invested in large-company stocks and long-term corporate
bonds. (Do not round intermediate calculations and enter
your answer as a percent rounded to 2 decimal places, e.g.,
32.16.)
Portfolio Return
%
b. What was the return on a portfolio that was
equally invested...

6.Assume that the returns on bonds and T-bills are normally
distributed. From 1957 to 2016, the average return rate for
Canadian T-bills is 5.71 percent and the standard deviation is 3.81
percent. For the same period, the average return rate for Canadian
long term bonds is 8.16 percent, risk premium is 2.45%, and the
standard deviation is 9.63 percent.
a.In 1979, the return on bonds was -2.83 percent. How likely is
it that a return this low will recur at...

Problem 10-18 Return Distributions [LO 3]
Consider the following table for different assets for 1926
through 2011.
Series
Average return
Standard Deviation
Large-company stocks
11.8
%
20.3
%
Small-company stocks
16.5
32.5
Long-term corporate bonds
6.4
8.4
Long-term government bonds
6.1
9.8
Intermediate-term government bonds
5.5
5.7
U.S. Treasury bills
3.6
3.1
Inflation
3.1
4.2
Requirement 1:
What range of returns would you expect to see 68 percent of the
time for large-company stocks? (Negative amount should be
indicated by...

Suppose we have the following returns for large-company stocks
and Treasury bills over a six year period:
Year
Large
Company
US Treasury
Bill
1
3.66
4.66
2
14.44
2.33
3
19.03
4.12
4
–14.65
5.88
5
–32.14
4.90
6
37.27
6.33
a.
Calculate the arithmetic average returns for large-company
stocks and T-bills over this period. (Do not round
intermediate calculations. Enter your answers as a percent rounded
to 2 decimal places, e.g., 32.16.)
Average
returns
Large company
stocks
%
T-bills...

Suppose the returns on long-term corporate bonds are normally
distributed. The average annual return for long-term corporate
bonds from 1926 to 2007 was 5.2 percent and the standard deviation
of those bonds for that period was 9.4 percent.
(a)
Based on this historical record, what is the approximate
probability that your return on these bonds will be less than -2.9
percent in a given year? (Do not round intermediate
calculations.)
18.47%
20.22%
19.44%
38.88%
20.41%
(b)
What range of...

Problem 10-8 Risk Premiums [LO 2]
Consider the following table for a period of six
years:
Returns
Year
Large-Company Stocks
U.S. Treasury Bills
1
–15.99
%
7.55
%
2
–26.86
8.12
3
37.49
6.13
4
24.19
6.37
5
–7.68
5.58
6
6.83
8.03
Calculate the arithmetic average returns for large-company stocks
and T-bills over this time period. (Do not round
intermediate calculations and enter your answers as a percent
rounded to 2 decimal places, e.g., 32.16.)
Arithmetic
average returns...

ADVERTISEMENT

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 16 minutes ago

asked 18 minutes ago

asked 37 minutes ago

asked 41 minutes ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago