Question

# Question 28 Over the past 4 years, large-company stocks and U.S. Treasury bills have produced the...

Question 28

Over the past 4 years, large-company stocks and U.S. Treasury bills have produced the returns stated below. During this period, inflation averaged 1.5 percent. Given this information, the average real rate of return on large-company stocks was ___ percent as compared to _____ percent for Treasury bills.

 Year 1 Year 2 Year 3 Year 4 Return (Large Cap Stocks) 12% 9% 6% 3% Return (U.S. Tsy-bills) 4% 2% 1% 1%

5.9; -0.5

6.5; -0.5

5.9; 0.5

6.5; 0.5

6.5; 0.0

 Year Large cap T bills 1 12.00% 4.00% 2 9.00% 2.00% 3 6.00% 1.00% 4 3.00% 1.00% Average= 7.50% 2.00%
 Where Average or Mean = Sum of all observations/Count of all observations
 Real return = ((1+nominal return)/(1+inflation rate)-1)*100 Real return=((1+0.075)/(1+0.015)-1)*100 Real return = 5.91
 Real return = ((1+nominal return)/(1+inflation rate)-1)*100 Real return=((1+0.02)/(1+0.015)-1)*100 Real return = 0.49

5.9; 0.5

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