Question: 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

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?

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