Suppose we have the following Treasury bill returns and inflation rates over an
ID: 2742160 • Letter: S
Question
Suppose we have the following Treasury bill returns and inflation rates over an eight year period: Year Treasury Bills Inflation 1 11.47% 14.07% 2 12.41 17.11 3 10.08 11.34 4 9.33 8.93 5 9.90 11.34 6 12.28 13.85 7 15.19 18.09 8 17.11 18.07 a. 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.) Treasury bills 11.85 % Inflation 13.75 % b. 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.) Treasury bills % Inflation % c. 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.) Average real return %
Explanation / Answer
Step-1:
No
Treasury bill
Inflation rates
1
11.47
14.07
2
12.41
17.11
3
10.08
11.34
4
9.33
8.93
5
9.9
11.34
6
12.28
13.85
7
15.19
18.09
8
17.11
18.07
Total
97.77
112.8
Average return on treaury biils and inflation
12.22
14.1
Step-2;
Calculate standard deviation for Treasury bill:
= 1/7[(0.1147–0.1222)2+ (0.1241–0. 0.1222)2+ (0.1008–0. 0.1222)2+ (0.0933–0. 0.1222)2+(0.099 – 0. 0.1222)2+ (0.1248 – 0. 0.1222)2+ (0.1519 – 0. 0.1222)2+ (0.1711 - 0. 0.1222)2]
Variance = 2.84%
Calculate standard deviation for inflation:
1/7[(0.1407–0.1410)2+ (0.1711–0. 0. 1410)2+ (0.1134–0. 0. 1410)2+ (0.0893–0. 0. 1410)2+(0.1134 – 0. 0. 1410)2+ (0.1385 – 0. 0. 1410)2+ (0.1809 – 0. 0. 1410)2+ (0. - 0.1807 0. 1410)2]
Variance = 3.48%
No
Treasury bill
Inflation rates
1
11.47
14.07
2
12.41
17.11
3
10.08
11.34
4
9.33
8.93
5
9.9
11.34
6
12.28
13.85
7
15.19
18.09
8
17.11
18.07
Total
97.77
112.8
Average return on treaury biils and inflation
12.22
14.1
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