NORM.DIST Function
Calculates the probability that variable x falls below or at a specified value
Calculates the probability that variable x falls below or at a specified value
The NORM.DIST function is categorized under Statistical functions. It will calculate the probability that variable x falls below or at a specified value. That is, it will calculate the normal probability density function or the cumulative normal distribution function for a given set of parameters.
To understand what normal distribution is, let us consider an example. Suppose we take an average 30 minutes to complete a task, with a standard deviation of 5 minutes. Assuming a normal distribution for the time it takes to complete the work, we can calculate the percentage of time for which the time would be between 25 minutes and 35 minutes.
As a financial analyst, the NORM.DIST function is useful in stock market analysis. In investing, we need to balance between risk and return and aim for the highest possible return. Normal distribution helps quantifies the two aspects, which is risk and return, by the mean for returns and standard deviation for risk.
=NORM.DIST(x,mean,standard_dev,cumulative)
The NORM.DIST uses the following arguments:
We can use 1 for TRUE and 0 for FALSE while entering the formula.
The formula used in calculating the normal distribution is:
Where:
The NORM.DIST function was introduced in Excel 2010. To understand the uses of the function, let us consider an example:
Suppose we know a friend who claims that his IQ is above 130. We know that the population mean IQ is 100 and the population standard deviation for IQ is 15. Based on this data, we can calculate the probability of that our friend showing an IQ above 130.
The formula to use is:
We get the result below:
The function gave us a result of 0.977, which means that there is a 2% probability of our friend showing an IQ of 130.
If we wish to calculate the probability that our friend has an IQ equal to exactly 130, we should use the following formula:
We get the result below:
It indicates roughly 0.35% of the population shows an IQ of 130. Here, Excel estimated the probability by using a small range for the single value.
Click here to download the sample Excel file
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