ch 12

#7

Suppose the average return on Asset A is 7.0 percent and the standard deviation is 8.2 percent and the average return and standard deviation on Asset B are 4.1 percent and 3.5 percent, respectively. Further assume that the returns are normally distributed. Use the NORMDIST function in Excel to answer the following questions.

a.	What is the probability that in any given year, the return on Asset A will be greater than 11 percent? Less than 0 percent? (Round your answers to 2 decimal places. (e.g., 32.16))

Greater than 11 percent	%
Less than 0 percent	%

b.	What is the probability that in any given year, the return on Asset B will be greater than 11 percent? Less than 0 percent? (Round your answers to 2 decimal places. (e.g., 32.16))

Greater than 11 percent	%
Less than 0 percent	%

c-1	In 1979, the return on Asset A was 4.37 percent. How likely is it that such a low return will recur at some point in the future? (Round your answer to 2 decimal places. (e.g., 32.16))

Probability

%

c-2	Asset B had a return of 10.80 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?(Round your answer to 2 decimal places. (e.g., 32.16))

Probability

%

15.

An asset has had an arithmetic return of 11.60 percent and a geometric return of 9.60 percent over the last 80 years. What return would you estimate for this asset over the next 5 years? 20 years? 36 years? (Round your answers to 2 decimal places. (e.g., 32.16))

Future annual returns
5 years	%
20 years	%
36 years	%