Over the past 4 years, large-company stocks and US Treasury billshave produced t

Question

Over the past 4 years, large-company stocks and US Treasury billshave produced the returns stated below.
Year 1 Year 2 Year 3 Year 4
percent return on large-company stocks    12    5    9    18 percent return on US treasury bills    2   3    3    4
During this period, inflation averaged 2.9%. Given thisinformation, the average real rate of return on large-companystocks was      % as compared to       % for Treasury bills and the standarddeviation for large company stocks was       compared to      for Treasury bills.
a. 7.87 , 0.10 , 5.48 , 0.82 b. 11.00 , .03 , 6.24 , 1.01 c. 7.87 , 1.00 , 6.24 , 1.01 d. 11.00 , .03 , 5.48 , 0.82 e. 7.87 , 0.10 , 4.87, 0.67
Year 1 Year 2 Year 3 Year 4
percent return on large-company stocks    12    5    9    18 percent return on US treasury bills    2   3    3    4
During this period, inflation averaged 2.9%. Given thisinformation, the average real rate of return on large-companystocks was      % as compared to       % for Treasury bills and the standarddeviation for large company stocks was       compared to      for Treasury bills.
a. 7.87 , 0.10 , 5.48 , 0.82 b. 11.00 , .03 , 6.24 , 1.01 c. 7.87 , 1.00 , 6.24 , 1.01 d. 11.00 , .03 , 5.48 , 0.82 e. 7.87 , 0.10 , 4.87, 0.67

Explanation / Answer

real return on large company stock=(1.12+1.05+1.09+1.18)/1.029 x1/4 -1=0.0787=7.87% real return on US treasury bills = (1.02+1.03+1.03+1.04)/1.029x1/4 -1 = 0.001= 0.1 %
mean of large company stock = (12+5+9+18)/4=11 s.d of large company stock =square root ( ( (0.12-.11)^2 +(0.05-.11)^2 +(0.09-.11)^2+(.18-.11)^2)/3)= 5.48% likewise sd of treasury bills= n0.82%
ans: a

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