The inflation rate in the United States has averaged 3.1% a year since 1900. Use
ID: 2759529 • Letter: T
Question
The inflation rate in the United States has averaged 3.1% a year since 1900. Use the data in the table below to answer the following question:
Average rates of return on Treasury bills, government bonds, and common stocks, 1900–2013.
A) What was the average real rate of return on Treasury bills, Treasury bonds, and common stocks in that period? (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.)
The inflation rate in the United States has averaged 3.1% a year since 1900. Use the data in the table below to answer the following question:
Average rates of return on Treasury bills, government bonds, and common stocks, 1900–2013.
Portfolio Average AnnualRate of Return Average Premium (Extra return
versus Treasury bills) Treasury bills 3.9 Treasury bonds 5.2 1.3 Common stocks 11.5 7.6
A) What was the average real rate of return on Treasury bills, Treasury bonds, and common stocks in that period? (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.)
Asset class Real rate of return Treasury bills __________% Treasury bonds __________% Common stocks __________%Explanation / Answer
Real return = ((1+nominal return)/(1+inflation rate)-1)*100
Avg real rate on T bill =((1+0.039)/(1+0.031)-1)*100
=0.78%
Avg real rate on Bonds =((1+0.052)/(1+0.031)-1)*100
=2.04%
Avg real rate on Stock =((1+0.115)/(1+0.031)-1)*100
=8.15%
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.