Problem 10-17 Return Distributions [LO 3] Series Average return What range of re

Question

Problem 10-17 Return Distributions [LO 3]

  Series

Average return

What range of returns would you expect to see 68 percent of the time for long-term corporate bonds?(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).)

What about 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).)

Explanation / Answer

Part 1:

For 68% times, return will fall within the range of 1 Standard Deviation:

Range = Average Return – 1SD   to Average return + 1SD

                = 0.05 – 1 x 0.083 to 0.05 + 1 x 0.083

                = -3.30% to 13.30%

Part 2:

For 95% times, return will fall within the range of 2 Standard Deviation:

Range = Average Return – 2SD   to Average return + 2SD

                = 0.05 – 2 x 0.083 to 0.05 + 2 x 0.083

                = -11.60% to 21.60%

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