Question

Suppose the returns on a particular asset are normally distributed. Also suppose the asset had an average return of 12.4% and a standard deviation of 28.6%. 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.):

Answer 1

33.23%

Explanation:

Given:

Avg return(mean), u= 12.4%

S.d = 28.6%

CUMULATIVE = True

Let's take X = 0 since no gain will be made any year I invest.

The probability of losing money any year investment is made, using the NORMSDIST function in excel, we have:

Normdist function = NORMDIST(expected returns, mean returns, standard deviation, cumulative)

NORMDIST(0,12.4,28.6, True)

= 0.332302

Convert to percentage, we have:

0.332302 * 100

≈ 33.23%