Problem 42

Intro

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.

Attempt 1/10 for 12 pts.

Part 1

What is the probability that the return on corporate bonds will be less than 2%?

Attempt 1/10 for 12 pts.

Part 2

What is the probability that the return on small company stocks will be less than 2%?

Attempt 1/10 for 12 pts.

Part 3

What is the probability that the return on large company stocks will be greater than 10%?