Problem:
Suppose the returns on an asset are normally distributed. Suppose the historical average annual return for the asset was 5.6 percent and the standard deviation was 10.3 percent.
Required:
Question 1: What is the probability that your return on this asset will be less than -2.5 percent in a given year? Use the NORMDIST function in Excel(R) to answer this question.
Question 2: What range of returns would you expect to see 95 percent of the time?
Question 3: What range would you expect to see 99 percent of the time?
Note: Provide support for rationale.