Suppose the returns on a particular asset are normally distributed. Also suppose the asset had an average return of 10.5% and a standard deviation of 21%. Use the NORMDIST function in Excel® to determine the probability that in any given year you will lose money by investing in this asset. (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.):
Suppose the returns on a particular asset are normally distributed. Also suppose the asset had an average return of 10.5% and a standard deviation of 21%. Use the NORMDIST function in Excel® to determine the probability that in any given year you will lose money by investing in this asset. (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.):
MATLAB: An Introduction with Applications
6th Edition
ISBN:9781119256830
Author:Amos Gilat
Publisher:Amos Gilat
Chapter1: Starting With Matlab
Section: Chapter Questions
Problem 1P
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Question
Suppose the returns on a particular asset are normally distributed . Also suppose the
asset had an average return of 10.5% and a standard deviation of 21%.
Use the NORMDIST function in Excel® to determine the probability that in any given year you will
lose money by investing in this asset. (Do not round intermediate calculations and
enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.):
Expert Solution
Step 1
The probability of losing money (return being less than 0%) is calculated using NORM.DIST function in Excel :
x = the value you want to test. This is 0%, as we are calculating the probability of the return being less than 0%.
mean = 10.5%. This is the mean of the distribution.
standard deviation = 21%. This is the standard deviation of the distribution.
cumulative = TRUE. Entering TRUE in this argument returns the probability that the value will be less than or equal to x.
=NORM.DIST( x , mean , std_dev , cumulative)
=NORM.DIST( 0 , 10.5 , 21 , TRUE)
=0.3085
=30.85%
The probability of losing money in any given year is 30.85%
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