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2 3 Suppose the returns on long-term corporate bonds and T-bills are normally distributed. Based on the historical record, use the NORMDIST function in Excel to answer the following questions: 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? 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? c. In 1980, the return on long-term government bonds was -3.95 percent. How likely is it that such a low return will recur at some point in the future? T-bills had a return of 11.24 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? 3 4 5 6 7 8 9 10 14 15 11 12 a. Return greater than 13 Return less than Return greater than Return less than c. Long-government bonds 16 17 18 Input area: 19 20 21 Long-term corporate bonds Average return Standard deviation T-bills b. Average return Standard deviation Average return Standard deviation Return less than Return greater than 6.40% 8.50% 3.40% 3.10% 10.00% 0.00% 10.00% 0.00% 6.00% 9.80% -3.95% 11.24% Output area: a. Probablity of return > 10 percent Probabilty of return 10 percent Probabilty of return 11.24 pecent 32 33 B 9 b. 0 2 3 Suppose the returns on long-term corporate bonds and T-bills are normally distributed. Based on the historical record, use the NORMDIST function in Excel to answer the following questions: 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? 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? c. In 1980, the return on long-term government bonds was -3.95 percent. How likely is it that such a low return will recur at some point in the future? T-bills had a return of 11.24 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? 3 4 5 6 7 8 9 10 14 15 11 12 a. Return greater than 13 Return less than Return greater than Return less than c. Long-government bonds 16 17 18 Input area: 19 20 21 Long-term corporate bonds Average return Standard deviation T-bills b. Average return Standard deviation Average return Standard deviation Return less than Return greater than 6.40% 8.50% 3.40% 3.10% 10.00% 0.00% 10.00% 0.00% 6.00% 9.80% -3.95% 11.24% Output area: a. Probablity of return > 10 percent Probabilty of return 10 percent Probabilty of return 11.24 pecent 32 33 B 9 b. 0

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