Average real return for Treasury bills % Average real return for Treasury bills

Question

Average real return for Treasury bills

%

Average real return for Treasury bills

%

Year Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Inflation 8.65% 12.28 6.88 4.92 6.64 8.96 13.23 12.46 T-bill return 8.34 5.93 5.37 5.51 7.94 10.62 12.40 Requirement 1 Calculate the average return for Treasury bills and the average annual inflation rate (consumer price index) for this period. (Do not include the percent signs(%). Round your answers to 2 decimal places e.g., 32.16).) Average return for Treasury bills Average annual inflation rate 0 Requirement 2. Calculate the standard deviation of Treasury bill returns and inflation over this time period. (Do not include the percent signs (%). Round your answers to 2 decimal places e.g., 3216).) Standard deviation of Treasury bills Standard deviation of inflation 0 Requirement 3 (a) Calculate the real return for each year. (Do not include the percent signs (%). Negative amounts should be indicated by a minus sign. Leave no cells blank -be certain to enter "O" wherever required. Round your answers to 2 decimal places (e.g., 32.16).) Year Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Real return 0 0 0 0 0 0 0 0 (b) What is the average real return for Treasury bills? (Do not include the percent sign (%). Negative amount should be indicated by a minus sign. Round your answer to 2 decimal places (e.q.,

Explanation / Answer

Average return for treasury bills = (7.35% + 8.34% + 5.93% + 5.37% + 5.51% + 7.94% + 10.62% + 12.40%)/8 = 7.93%

Average annual inflation rate = (8.65% + 12.28% + 6.88% + 4.92% + 6.64% + 8.96% + 13.23% + 12.46%)/8 = 9.25%

Variance of treasury bills = Total of squared/(n-1) = 0.441%/(8-1) = 0.00063

Standard deviation of treasury bills = SQRT (Variance) = SQRT(0.00063) = 0.02510 = 0.03 (rounded)

Variance of Inflation = Total of squared/(n-1) = 0.669%/(8-1) = 0.0009563

Standard deviation of Inflation = SQRT (Variance) = SQRT(0.0009563) = 0.030925 = 0.03 (rounded)

Average real return for Treasury bills = -10.56%/8 = -1.32%

T-bill return T-bill return
- Average Return Squared the
difference Inflation Inflation
- Average Return Squared the
difference Year 1 7.35% -0.58% 0.003% 8.65% -0.60% 0.004% Year 2 8.34% 0.41% 0.002% 12.28% 3.03% 0.092% Year 3 5.93% -2.00% 0.040% 6.88% -2.37% 0.056% Year 4 5.37% -2.56% 0.066% 4.92% -4.33% 0.188% Year 5 5.51% -2.42% 0.059% 6.64% -2.61% 0.068% Year 6 7.94% 0.01% 0.000% 8.96% -0.29% 0.001% Year 7 10.62% 2.69% 0.072% 13.23% 3.98% 0.158% Year 8 12.40% 4.47% 0.200% 12.46% 3.21% 0.103% Total 63.46% 0.441% 74.02% 0.669% Average Return 7.93% 9.25% Variance 0.000630451 0.000956391 Standard
Deviation 0.025108778 0.030925567 Rounded 0.03 0.03

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