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A)

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 6.4 percent and the standard deviation of those bonds for that period was 9.5 percent. Based on this historical record, what is the approximate probability that your return on these bonds will be less than -3.4 percent in a given year? Answer options: 15.11%, 15.87%, 30.22%, 15.11%, or 14.35% What range of returns would you expect to see 95% of the time? Answer options: -3.3 to 22.3%, -11.97 to 24.13%, -12.6 to 25.4%, -13.23 to 26.67%, -22.1 to 34.9% what range of returns would you expect to see 99% of the time? Answer options: -12.60 to 25.4%, -9.7 to 28.7%, -22.1 to 34.9%, -23.2 to 36.64%, or -20.99 to 33.16% B) Using the same table above, suppose the returns on large-company stocks are normally distributed. The average annual return for large-company stocks from 1926 to 2007 was 13.5 percent and the standard deviation of those stocks for that period was 21.9 percent. Based on the historical record, use the cumulative normal probability table (rounded to the nearest table value) in the appendix of the text to determine the probability that in any given year you will lose money by investing in common stock. Answer options: $26.88%, $5.24%, $28.22%, $25.54%, or $27.96%

TABLE A.11 Cumulative Areas under the Standard Normal Curve 3 Z 0009 0007 .00 .0003 .0005 .0007 .0010 .0013 .0019 .0026 .0035 .0047 .0062 .0082 ,0107 .0139 .0179 .0228 0287 .0359 0446 .0548 7 0643 -1.4 -1.3 0951 -1.1 -1.0 .01 .02 .03 .04 .05 .06 .0003 .0003 .0003 0003 0003 .0003 0005 .0005 .0004 00040004 .0004 .0007 .0006 0006 0006 0006 .0006 0009 .0009 .0008 0008 .0008 .0013 0013 0012 0012 20011 .0011 .0018 0018 .0017 0016 .0016 .0015 .0025 .0024 .0023 .0023 20022 0021 0034 .0033 .0032 .0031 0030 .0029 .0045 9.0044 000 .0043 .0041 00400039 .0039 .0060 0059 .0057 .0055 .0054 .0052 0080 .0078 .0075 0073 .0071 .0069 0104 0102 .0099 0096 .0094 .0091 0136 .0132 .0129 0125 0122 .0119 20174 20170 .0166 .0162 .0158 .0154 .0222 20217 .0212 0207 20202 .0197 0281 0274 .0268 0262 0256 0250 0351 .0344 0336 03290322 .0314 0436 .0427 .0418 0409 0401 0292 0537 ,0526 0516 .0505 0495 .0485 0655 .0530 0618 0606 .0594 0793 .0778 .0764 0749 0735 .0721 .0934 .0918 0901 20685 0869 .1131 1112 1093 1075 1056 .1038 .1335 .1314 1292 1271 1251 1230 .1562 .15391515 . 1469 .1446 .1814 .1788 .1762 1736 1711 . 1685 2090 .2061 .2033 2005 .1977 1949 .2389 .2358 .2327 2296 .2266 .2236 2709 .2676 2643 2611 2578 2546 3050 .3015 .2981 .2946 .2912 2877 3409 3372 .3336 3300 3264 -3228 3783 .3745 .3707 3669 3632 3594 4168 4129 .4090 4052 4013 3974 4562 .4522 4483 4443 4404 4364 4960 .4920 4880 4840 4801 4761 5040 .5080 .5120 5160 .5199 5239 5438 5478 .5517 5557 .5596 .5636 .5832 .5871 .5910 5948 .5987 .6026 6217 .6255 .6293 .6331 6368 6406 .6591 .6628 .6664 6700 .6736 .6772 .6985 .7019 7054 .7088 7123 .7291 .7324 .7357 7389 7422 7454 .7611 .7642 7673 7704 7734 .7764 .7910 .7939 .79677995 8023 .8051 8186 .8212 .8238 8264 8289 .8315 1438 .8461 8485 850B 8531 .8554 8665 .8686 .8708 8729 8749 .8770 8869 .8888 8907 8925 8944 .8962 90499066 9082 90999115 9131 .9207 .9222 .9236 9251 9265 .9279 .07 .08 .09 .0003 0 003 .0002 .0004 .0004 .0003 0005 0005 .0005 .0008 .0007 .0011 .0010 0010 .00150014 .0014 ,0021 0020 .0019 .00280027 .0026 .0038 0037 .0036 .0051 .0049 0049 .0048 20068 0066 .0064 .0089 0087 0084 .0116 0113 .0110 20150 .0146 0143 .0192 0188 0183 ,0244 ,0239 ,0223 .0307 0301 0294 .0384 0375 .0367 .0475 0465 .0455 .0582 ,0571 .0559 .0708 0694 .0681 .0853 0838 0823 1020 1003 0985 .1210 1190 1170 . 1423 1401 1379 .1660 . 1635 -1611 1922 1894 1867 .2206 2177 2148 2514 2483 2451 2843 .2810 2776 .3192 35573520 3483 3936 3897 3859 4325 4286 4247 4721 4681 4641 .52795319 5359 5675 5714 .6064 .6103 .6141 .6443 6480 .6517 .6808 .6844 .7157 .7190 7224 .7486 .7517 .7549 .7794 .7823 -7852 .8078 .81068133 .82.40 .8365 8389 .8577 .8599 .8621 .8790 .8810 8830 .89808997 .9015 91479162 9177 .9292 9 306 9319 -0.7 -0.6 -0.5 3156 3121 .0808 .0968 .1151 1357 1587 .1841 -2119 .2420 .2743 .3085 .34.46 .3821 ,4207 4602 .5000 .5000 .5398 .5793 .6179 .6554 .6915 .7257 .7580 .7881 .8159 .8413 .8643 .8849 .9032 .9192 -0.3 -0.2 -0.0 0.0 5753 6950 0.8 S

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