Suppose we have the following Treasury bill returns and inflation rates over an

Question

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

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.)

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.)

   

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.)

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

Explanation / Answer

(a) Average = sum of all returns/no. of years

(b) Standard Deviation is the square root of Variance. We have calculated variance as under:-

So SD of TE. Return= (5.82)^1/2= 2.41

Standard Deviation of Inflation= (9.58)^1/2= 3.09

(c) Average resl return= sum(Return on T.E- Inflation)/8

Year T.E Return (%) Inflation rate (%) 1 9.23 11.07 2 10.1 14.66 3 7.84 9.03 4 6.92 6.59 5 7.42 8.79 6 9.73 11.23 7 12.57 15.4 8 14.35 15.2 Avg 9.77 11.49

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