Question

Suppose the returns on long-term government bonds are normally distributed. Assume long-term government bonds have a mean return of 6.0 percent and a standard deviation of 9.9 percent. a. What is the approximate probability that your return on these bonds will be less than −3.9 percent in a given year?

Answer 1

0.1587

Explanation:

Let X be the random variable that represents a return on long-term government bond. We know that X has a mean of 6.0 and a standard deviation of 9.9, in order to compute the approximate probability that your return on these bonds will be less than -3.9 percent in a given year, we should compute the z-score related to -3.9, i.e., (-3.9-6.0)/9.9 = -1. Therefore, we are looking for P(Z < -1) = 0.1587