Using Probability Distributions Suppose the returns on long-term corporate bonds and Tbills are normally distributed. Based on
Question:
Using Probability Distributions Suppose the returns on long-term corporate bonds and Tbills are normally distributed. Based on the historical record, use the cumulative normal probability table (rounded to the nearest table value) in Chapter 22 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?
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?
c. In 1979, the return on long-term corporate bonds was 4.18 percent. How likely is it that this low of a return will recur at some point in the future? T-bills had a return of 10.32 percent in this same year. How likely is it that this high of a return on T-bills will recur at some point in the future?
LO.1
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