Suppose the average return on Asset A is 6.9 percent and the standard deviation

Question

Suppose the average return on Asset A is 6.9 percent and the standard deviation is 8.1 percent and the average return and standard deviation on Asset B are 4.0 percent and 3.5 percent, respectively. Further assume that the returns are normally distributed. Use the NORMDIST function in Excel® to answer the following questions.

In a particular year, the return on Asset A was 4.36 percent. How likely is it that such a low return will recur at some point in the future? (Do not round intermediate calculations and round your answers to 2 decimal places. (e.g., 32.16))

Asset B had a return of 10.70 percent in this same year. How likely is it that such a high return on Asset B will recur at some point in the future? (Do not round intermediate calculations and round your answers to 2 decimal places. (e.g., 32.16))

Explanation / Answer

The probability that in any given year, the return on Asset A will be greater than 10 percent. Less than 0 percent.

Z=

Z = 10 - 6.9/8.1

The probability that the return on asset A will be greater than 10% is 0.3520

Less than 0 percent

z= 0-6.9 / 8.1

The probability that return on asset A will be less than 0% is 0.1977

The probability that in any given year, the return on Asset B will be greater than 10 percent

Z=

z = 10 - 4 /3.5

The probability that the return on asset b will be greater than 10% is 0.0446

Less than 0%

z = 0-4 / 3.5

The probability that the return on asset b will be less than 0% is 0.1271

In 1979, the return on Asset A was 4.36 percent. How likely is it that such a low return will recur at some point in the future?

The probability that return on asset A is between 0 & 10 percent

The probability that return on asset A is 0% = 0.1971

The probability that return on asset A is 10 % = 0.649

The probability that return on asset A is between 0 & 10 percent = 0.649 - 0.1971 = 0.4519

Asset B had a return of 10.70 percent in this same year. Therefore the probability that such a high return on T -bills will recur at some point in the future will be 0.0446

Related Questions

Navigate

• Browse (All)
• Browse S
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.