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%

Group of answer choices

5.9; -0.5

6.5; -0.5

5.9; 0.5  

6.5; 0.5

6.5; 0.0

Homework Answers

Answer #1
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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