Question

A and B are already correct, I just need Part C :)

Suppose we have the following Treasury bill returns and inflation rates over an eight year period:

Year	Treasury Bills	Inflation
1	10.77%	13.17%
2	11.69	16.35
3	9.38	10.62
4	8.65	8.27
5	9.20	10.62
6	11.56	13.11
7	14.45	17.33
8	16.33	17.27

a.	Calculate the average return for Treasury bills and the average annual inflation rate for this period. (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)

Treasury bills	11.5 %
Inflation	13.34 %

b.	Calculate the standard deviation of Treasury bill returns and inflation over this period. (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)

Treasury bills	2.69 %
Inflation	3.4 %

   

c.	What was the average real return for Treasury bills over this period? (Negative amount should be indicated by a minus sign. Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Average real return

%

Answer 1

Year	Treasury Bills (nominal return)	Inflation	Real returns (1+ nominal return)=(1+real return)(1+ inflation)
1	10.77%	13.17%	-2.12%
2	11.69%	16.35%	-4.01%
3	9.38%	10.62%	-1.12%
4	8.65%	8.27%	0.35%
5	9.20%	10.62%	-1.28%
6	11.56%	13.11%	-1.37%
7	14.45%	17.33%	-2.45%
8	16.33%	17.27%	-0.80%
				Average returns	[(1+real return for t1)(1+real return for t2)(1+real return for tn)]^(1/no. of periods) - 1
					also known as geometric mean of returns
				Average returns	-1.61%

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