Question

Suppose the average return on Asset A is 7.0 percent and the standard deviation is 8.2 percent and the average return and standard deviation on Asset B are 4.1 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.

a.	What is the probability that in any given year, the return on Asset A will be greater than 11 percent? Less than 0 percent? (Round your answers to 2 decimal places. (e.g., 32.16))

Greater than 11 percent	%
Less than 0 percent	%

b.	What is the probability that in any given year, the return on Asset B will be greater than 11 percent? Less than 0 percent? (Round your answers to 2 decimal places. (e.g., 32.16))

Greater than 11 percent	%
Less than 0 percent	%

c-1	In 1979, the return on Asset A was ?4.37 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))

Probability

%

c-2	Asset B had a return of 10.80 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))

Probability	%
rev: 12_06_2012

Answer 1

a.

What is the probability that in any given year, the return on Asset A will be greater than 11 percent?

=1-normdist(11%,7%,8.2%,true)=31.284402793628300%

Less than 0 percent?

=normdist(0%,7%,8.2%,true)=19.664710721094400%

b.

What is the probability that in any given year, the return on Asset B will be greater than 11 percent?

=1-normdist(11%,4.1%,3.5%,true)=2.433743783673450%

Less than 0 percent?

=normdist(0%,4.1%,3.5%,true)=12.071327669102200%

Assuming c is not asking the probability of a single poitn return..If that is the case answer in both subparts below will be zero

c-1

In 1979, the return on Asset A was ?4.37 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))

Probability of returns less than or equal to -4.37%

=normdist(-4.37%,7%,8.2%,true)=8.278411661347530%

c-2

Asset B had a return of 10.80 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))

Probability of returns more than or equal to 10.8%

=1-normdist(10.8%,4.1%,3.5%,true)=2.779182938538440%