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 5.1% and a standard deviation of 8.4%. For the same period, T-bills had an average return of 3.6% and a standard deviation of 2.6%. 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? (Do not round intermediate calculations and enter your answers as a percent 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 and enter your answers as a percent 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 −3.8 percent. How likely is it that such a low return will recur at some point in the future? T-bills had a return of 10.22 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 and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)
Probability of return on long-term corporate bonds less than –3.8 percent %
Probability of T-bill return greater than 10.22 percent %