What is the probability-return on long-term corporate bonds

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Reference no: EM131527156

Suppose the returns on long-term corporate bonds and T-bills are normally distributed. Assume for a certain time period, long-term corporate bonds had an average return of 6.4% and a standard deviation of 8.4%. For the same period, T-bills had an average return of 3.6% and a standard deviation of 3.1%.

(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 such a low return will recur at some point in the future? T-bills had a return of 10.56 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?

Reference no: EM131527156

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