1. Below are the historical arithmetic average returns and standard deviations for different asset classes.

Asset class	Mean return	Standard deviation
T-bills	0.035	0.031
Corporate bonds	0.063	0.084
Small company stocks	0.169	0.323
Large company stocks	0.121	0.202

Assume that the returns are normally distributed. Use a standard normal table to answer the following questions.

a. What is the probability that the return on corporate bonds will be less than 7%?

b. What is the probability that the return on small company stocks will be less than 7%?

c. What is the probability that the return on large company stocks will be greater than 5%?

2. You've recorded the following historical annual returns for a stock:

Year	Return
1	10%
2	3%
3	-14%
4	5%
5	9%

a. What was the standard deviation of returns?

Answer rating: 100% (QA)

Answer For the first part of the question we will use the Zscore formula to standardize the returns ... View the full answer