Suppose the returns on long-term corporate bonds are normally distributed The av

Question

Suppose the returns on long-term corporate bonds are normally distributed The average annual return for long-term corporate bonds from 1926 to 2007 was 6.3 percent and the standard deviation of those bonds for that period was 8.9 percent. TABLE A.11 Cumulative Areas under the Standard Normal Curve 06 -33 0005 -2.9 0019 0018 0018 0017 0016 0016015 .0015 0014 014 0025 0024 0023 0230022 210021 -2.8 0026 0020 0019 :0024 .0033 .0032 ,0031 .00),0029 .0029 .0027 .0026 -26 0047 0045 0044 0043 000 03 0038 0036 -2.5 1.0062 .0060 .0 59 .0057 .0055 .0054 .0052 .0051 .0049 .0048 00600078 75 0073 0071 0136 0222 021 01 020 0202 -23 0107 0139 0119 0154 0116 0150 012S 0122 0170 -2.0 0228 1.9 0287 1.8 0359 .0281 .0274 .0268 .0262 .0256 A250 .0244 .0239 .0233 0344 3 0329 0322 0314 ,0307 0001 .0294 030 3G .0427 0418 0409 .0401 .0392 ,038d 0375 .0367 0516 0838 1292 1515 1788 1762 1650 1635 1894 1814 1736 2090 2061 2033 200S -08 2119 238 2358 2327.2206 2266 2236 2206 2177 2148 2611 344630s0 376 2327 0111 144 120 10030823 3897 3859 -02 4207 -.4602 4168 129 4099 405203 39T4 3936 3 .4562 .as22 4483 .444 .4404 A344 ,a32S 42tG A24.7 5040 5000 120 5160 S199 5239 5279 5319 5438 5478 5517 5557 5596 5636 5675 5714 0.0 5359 5753 5000 57933438 04 6554 6501 6628 664 6700 6736 4772 6808 844 879 7123 0.77580 7G11 ,7G42 "7673 .7704 .7734 .7764 94 7823 7852 8051 10 8413 12 8840 14 9192 16 9452 8438 8461 8485 08 31 8554 577 599 821 90 90669082 999 9115131 91 9162 9177 9370 9463 9474 9484 9495 9505 515 95259535 9545 9713 20 9772 9719 9726 32 9738 9744 9750 976 9761 9767 9778 9783 78 9793 998 4803 808912 9817 9875 9878 881 9834 97 90 24 9918 9941 26 9963 27 9965 9955 56 57 9950 G60 961 .9952 9971 9973 9759976 9977 99779978 979 9979 990 9981 29 9981 9983 914 9969986 9087992 Required (a)Based on this historical record, what is the approximate probability that your return on these bonds will be less than -3.8 percent in a given year? Do not round intermediate calculations.) (Click to select) (b)What range of returns would you expect to see 95 percent of the time? (Do not round intermediate calculations.) (Click to select) (c)What range would you expect to see 99 percent of the time? (Do not round intermediate calculations.) (Click to select)

Explanation / Answer

Solution:-
a) P(X < -3.8) = P((X-mean)/s < (-3.8-6.3)/8.9) = P(Z < -1.1348) = 0.1292

b) 95 percent of the time is x +/- 2*sd
= 6.3 +/- (2*8.9)
= (-11.5 , 24.1)
c) 99 percent of the time is x +/- 3*sd
= 6.3 +/- (3*8.9)
=(-20.4 , 33)

Related Questions

Navigate

• Browse (All)
• Browse S
• Subjects

---

---

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