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