Suppose the average return on an asset is 12 percent and the

Suppose the average return on an asset is 12 percent and the standard deviation is 21.6 percent. Further assume that the returns are normally distributed. Use the NORMDIST function in Excel® to determine the probability that in any given year you will lose money by investing in this asset.

Solution

You will lose money if the return is less than 0 percent.

So, to get the left tailed area of 0 percent, we use

=NORMDIST(critical value, mean, standard deviation, cumulative)

Plugging in our data, and placing \"1\" at the end so that it accumulates the area,

=NORMDIST(0,12,21.6,1)

Gives us

P(x<0) = 0.289257361 [ANSWER]