Normal and Standard

Normal Distribution
through Microsoft Excel
Norm.dist function
The NORM.DIST Function is categorized under Excel
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.
Norm.dist function
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 best
possible return. Normal distribution helps quantifies
the two aspects, risk and return, by the mean for
returns and the standard deviation for risk.
Norm.dist function
Formula
=NORM.DIST(x,mean,standard_dev,cumulative)
The NORM.DIST uses the following arguments:
X (required argument) – This is the value for which we wish to calculate the distribution.
Mean (required argument) – The arithmetic mean of the distribution.
Standard_dev (required argument) – The standard deviation of the distribution.
Cumulative (required argument) – This is a logical value. It specifies the type of
distribution to be used: TRUE (Cumulative Normal Distribution Function) or FALSE
(Normal Probability Density Function).
We can use 1 for TRUE and 0 for FALSE when entering the formula.
How to use the Norm.dist function

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 that our friend has an IQ
above 130.
Interpreting the result
Interpretation
Having the cumulative distribution function value
of 0.977, this means that there is only a 2% probability
that our friend has an IQ of greater than 130.
However, with the use of probability mass function,
0.35% of the population shows an IQ of 130 exactly.
Few notes about norm.dist function
• NORM.DIST replaces the NORMDIST function.
• The NORM.DIST() function refers to any normal distribution, whereas
the NORMSDIST() compatibility function and the NORM.S.DIST()
consistency function refer specifically to the unit normal distribution.
• #NUM! error – Occurs if the given standard_dev argument is less than
or equal to zero.
• #VALUE! error – Occurs when any of the given arguments is non-
numeric or is a non-logical value.
Norm.s.dist function
The NORM.S.DIST Function is categorized under Excel
Statistical functions. It will calculate the Standard
Normal Distribution function for a given value. The
NORM.S.DIST function can be used to determine the
probability that a random variable that is standard
normally distributed would be less than 0.5.
Norm.s.dist function
In financial analysis, NORM.S.DIST helps calculate
the probability of getting less than or equal to a
specific value in a standard normal distribution.
For example, it can be used for changes in the price
indices, with stock prices assumed to be normally
distributed.
Norm.s.dist function
Formula
=NORM.S.DIST(z,cumulative)
The NORM.S.DIST function uses the following arguments:
Z (required argument) – This is the value for which we want the distribution.
Cumulative (required argument) This is the logical argument that denotes the type of
distribution to be returned.
If “cumulative” = True (normal cumulative distribution function), then the area under the
curve to the left of “x” is returned. That is, it would use the cumulative distribution function.
If “cumulative” = False (normal density function), the height of the curve at “x” is returned.
That is, it would use the probability density function. So, the mean = 0 and the standard
deviation = 1.
Few notes about norm.s.dist
function
• The NORM.DIST() function refers to any normal distribution, whereas the
NORMSDIST() compatibility function and the NORM.S.DIST() consistency
function refer specifically to the unit normal distribution.
• #VALUE! error – Occurs when any of the given arguments is non-numeric or
is a non-logical value.
• S.DIST is a special case of NORM.DIST. If we let the mean equal 0 and the
standard deviation equal 1, the calculations for NORM.DIST match those of
NORM.S.DIST.
• The NORM.S.DIST function was introduced in MS Excel 2010 as a
replacement for the NORMSDIST function.
exercise
Most graduate schools of business require applicants for
admission to take the Graduate Management Admission
Council’s GMAT examination. Scores on the GMAT are
roughly normally distributed with a mean of 527 and a
standard deviation of 106. What is the probability of an
individual scoring above 500 on the GMAT? What is the
probability of getting a score exactly 500?