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10 Feb 2019

Suppose the returns on long-term corporate bonds and T-bills are normally distributed. Assume for a certain time period, long-term corporate bonds had an average return of 5.3% and a standard deviation of 8.1%. For the same period, T-bills had an average return of 3.8% and a standard deviation of 2.6%. Use the NORMDIST function in Excel® to answer the following questions: Required: (a) 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? (Do not round intermediate calculations. Enter your answers as a percentage rounded to 2 decimal places (e.g., 32.16).) Probability of return greater than 10 percent % Probability of return less than 0 percent % (b) What is the probability that in any given year, the return on T-bills will be greater than 10 percent? Less than 0 percent? (Do not round intermediate calculations. Enter your answers as a percentage rounded to 2 decimal places (e.g., 32.16).) Probability of T-bill return greater than 10 percent % Probability of T-bill return less than 0 percent % (c) In one year, the return on long-term corporate bonds was −4 percent. How likely is it that such a low return will recur at some point in the future? T-bills had a return of 10.72 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? (Do not round intermediate calculations. Enter your answers as a percentage rounded to 2 decimal places (e.g., 32.16).) Probability of return on long-term corporate bonds less than –4.00 percent % Probability of T-bill return greater than 10.72 percent

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Elin Hessel
Elin HesselLv2
11 Feb 2019

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