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Drill Down: Calculating The Z-Value

To calculate cumulative probabilities for a normal distribution in Excel, the NORM.DIST and NORM.S.DIST functions can be used. NORM.DIST requires values for x, the mean, and standard deviation, while NORM.S.DIST only requires the z-value. Both functions use the argument "TRUE" to return the cumulative probability of being less than or equal to the given value. Alternatively, the STANDARDIZE function can standardize a value to a z-score, which can then be input into NORM.S.DIST to find the cumulative probability.

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58 views

Drill Down: Calculating The Z-Value

To calculate cumulative probabilities for a normal distribution in Excel, the NORM.DIST and NORM.S.DIST functions can be used. NORM.DIST requires values for x, the mean, and standard deviation, while NORM.S.DIST only requires the z-value. Both functions use the argument "TRUE" to return the cumulative probability of being less than or equal to the given value. Alternatively, the STANDARDIZE function can standardize a value to a z-score, which can then be input into NORM.S.DIST to find the cumulative probability.

Uploaded by

Nu Delta
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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To find a cumulative probability, the probability of being less than a specified value on a

normal curve, we use Excel’s NORM.DIST function.

=NORM.DIST(x, mean, standard_dev, cumulative)

 x is the value at which you want to evaluate the distribution function.


 mean is the mean of the distribution.
 standard_dev is the standard deviation of the distribution.
 cumulative is an argument that specifies the type of probability we wish to
calculate. We insert “TRUE” to indicate that we wish to find the cumulative
probability, that is, the probability of being less than or equal to the x-value.
(Inserting the value “FALSE” provides the height of the normal distribution at the
value x, which we will not cover in this course.)

For a standard normal curve, we know the mean is 0 and the standard deviation is 1, so
we could find a cumulative probability using =NORM.DIST(x,0,1,TRUE). Alternatively,
we use Excel’s NORM.S.DIST function =NORM.S.DIST(z, cumulative). The "S" in this
function indicates it applies to a standard normal curve.

 z is the value (the z-value) at which we want to evaluate the standard normal
distribution function.
 cumulative is an argument that specifies the type of probability we wish to
calculate. We will insert “TRUE”.

Drill Down: Calculating the z-value

Another way to find the cumulative probability for a normal distribution is to use the
functions STANDARDIZE and NORM.S.DIST. The STANDARDIZE function
“standardizes” the data by returning the z-value, using the familiar
equation, z=x−μσz=x−μσ. Note that the term “standardize” reinforces our interpretation of
the z-value as the number of standard deviations from the mean.

=STANDARDIZE(x, mean, standard_dev)

 x is the value to be standardized.


 mean is the mean of the distribution.
 standard_dev is the standard deviation of the distribution.

After standardizing, we can insert the resulting z-value into the NORM.S.DIST function
to find the cumulative probability of that z-value.
Related: Alternative Excel Functions

NORM.DIST replaces the function:

=NORMDIST(x, mean, standard_dev, cumulative)

NORM.S.DIST replaces the function:

=NORMSDIST(z)

Throughout the course we will provide alternative functions that existed prior to Excel
2010 that can still be used in Excel 2010.

For a normal distribution with mean 100 and standard deviation 10, find the probability of
obtaining a value greater than or equal to 80 but less than or equal to 115.

fx

=NORM.DIST(115,100,10,TRUE)

Result

Incorrect.
First find the cumulative probability of 115 using the function
NORM.DIST(115,B1,B2,TRUE). Then calculate the cumulative probability of 80 using
the function NORM.DIST(80,B1,B2,TRUE). Then find the difference between the two:
NORM.DIST(115,B1,B2,TRUE)–NORM.DIST(80,B1,B2,TRUE)=0.91, or 91%. 91% of
the population lies between 80 and 115.

=NORM.INV(probability, mean, standard_dev)

 probability is the cumulative probability for which we want to know the


corresponding x-value on a normal distribution.
 mean is the mean of the distribution.
 standard_dev is the standard deviation of the distribution.
NORM.INV replaces the function:

=NORMINV(probability, mean, standard_dev)

Throughout the course we will provide alternative functions that existed prior to Excel
2010 that can still be used in Excel 2010.

For a standard normal curve, we could translate a cumulative probability into to a value
using NORM.INV(probability,0,1). Alternatively, we could use the Excel function
NORM.S.INV. The “S” in this function indicates that it applies to a standard normal
curve. Since we are working with the standard normal curve, we can interpret the
resulting value as a z-value.

=NORM.S.INV(probability)

 probability is the cumulative probability for which we want to know the corresponding x-
value on a standard normal distribution.

For example, if we wanted to know the z-value for the 95th percentile on a standard
normal curve, we would enter =NORM.S.INV(0.95)=1.645. Equivalently, we could enter
=NORM.INV(0.95,0,1)=1.645.

NORM.S.INV replaces the function:

=NORMSINV(probability)

Throughout the course we will provide alternative functions that existed prior to Excel
2010 that can still be used in Excel 2010.

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