Suppose the returns on long-term government bonds are normally distributed. Assu

Question

Suppose the returns on long-term government bonds are normally distributed. Assume long-term government bonds have a mean return of 6.9 percent and a standard deviation of 10.1 percent. Requirement 1: What is the probability that your return on these bonds will be less than -13.3 percent in a given year? Use the NORMDIST function in Excel to answer this question. (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places (eg., 32.16).) Requirement 2: What range of returns would you expect to see 95 percent of the time? (Negative amount should be indicated by a minus sign. Input your answers from lowest to highest to receive credit for your answers. Do not round intermediate calculations. Enter your answers as a percentage rounded to 2 decimal places (e.g., 32.16).) Requirement 3: What range would you expect to see 99 percent of the time? (Negative amount should be indicated by a minus sign. Input your answers from lowest to highest to receive credit for your answers. Do not round intermediate calculations. Enter your answers as a percentage rounded to 2 decimal places (e.g., 32.16).)

Explanation / Answer

Answer 1 Probability of Bonds by using NORMDist function in Excel

  =NORM.DIST(x,mean,standard_dev,cumulative)

Here is X = -13.3

Mean = 6.9

Standard Deviation = 10.1

= NORM.DIST(-13.3,6.9,10.1,1)

= 0.02275

= 2.28%

ANSWER - 2 Range of return at 95 % level

Return Range = Return + 1*standard deviation

   At 95% level return range = 6.9 + 1*10.1

Expected Return range = -3.20 % to 17.00%

ANSWER - 3 Range of return at 99 % level

Return Range = Return + 1*standard deviation

    At 99% level return range = 6.9 + 1*10.1

Expected Return range = -3.20 % to 17.00%

Related Questions

Navigate

• Browse (All)
• Browse S
• Subjects

---

---

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