Suppose the returns on long-term corporate bonds and T-bills are normally distri

Question

Suppose the returns on long-term corporate bonds and T-bills are normally distributed. Based on the historical record, use NORMDIST function in Excel® text to answer the following questions: Refer to Figure 12.10.

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? (Round your answers to 2 decimal places. (e.g., 32.16))

What is the probability that in any given year, the return on T-bills will be greater than 10 percent? Less than 0 percent? (Round your answers to 2 decimal places. (e.g., 32.16))

In 1979, the return on long-term corporate bonds was ?2.76 percent. How likely is it that such a low return will recur at some point in the future? (Round your answer to 2 decimal places. (e.g., 32.16))

T-bills had a return of 10.56 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? (Round your answer to 2 decimal places. (e.g., 32.16))

Suppose the returns on long-term corporate bonds and T-bills are normally distributed. Based on the historical record, use NORMDIST function in Excel® text to answer the following questions: Refer to Figure 12.10.

FIGURE 12.10 Historical Returns, Standard Deviations, and Frequency Distributions: 1926-2013 Standard Average Return Series Distribution Large-company stocks 12.1% 20.2% al Small-company stocks 16.9 32.3 Long-term corporate bonds 6.3 8.4 Long-term government 5.9 9.8 bonds Intermediate-term 5.4 5.7 government bonds U.S. Treasury bills 3.5 Inflation 3.0 The 1933 small-company stocks total return was 142.9 percent. SOURCE: Modified from Stocks, Bonds, Bils, and inflation: 2014 Yearbook™ annually updates work by Roger G. Ibbotson and Rex A. Sinquefield (Chicago: Morningstar). All rights reserved.

Explanation / Answer

A Greater than 10% = 32.97

Less than 0 percent = 22.66

B.

Greater than 10% = 1.80

Less than 0 percent = 12.94

C. probabiliy 33.67%

D. probabiliy 98.86%

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