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 (consumer price index) for this period. (Round your answers 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 and round your final answers 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. Round your answer 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. Calculation of Average Return and Average inflation Year Returns Inflation 1 8.81 10.6 2 9.66 14.18 3 7.42 8.59 4 6.52 6.21 5 7 8.35 6 9.29 10.77 7 12.11 14.92 8 13.85 14.6 Sum 74.66 88.22 Average= Sum /8 9.3325 11.0275 b. Calculation of Standard Deviation of Retruns Year Returns Avg. Return Deviation Deviation Square A B C=A-B D =C*C 1 8.81 9.3325 -0.5225 0.27300625 2 9.66 9.3325 0.3275 0.10725625 3 7.42 9.3325 -1.9125 3.65765625 4 6.52 9.3325 -2.8125 7.91015625 5 7 9.3325 -2.3325 5.44055625 6 9.29 9.3325 -0.0425 0.00180625 7 12.11 9.3325 2.7775 7.71450625 8 13.85 9.3325 4.5175 20.40780625 Sum of D 45.51275 Standard Deviation                            2.55 (Sum of D /8-1)^(1/2) Calculation of Standard Deviation of Inflation Year Inflation Avg. Inflation Deviation Deviation Square A B C=A-B D =C*C 1 10.6 11.0275 -0.4275 0.18275625 2 14.18 11.0275 3.1525 9.93825625 3 8.59 11.0275 -2.4375 5.94140625 4 6.21 11.0275 -4.8175 23.20830625 5 8.35 11.0275 -2.6775 7.16900625 6 10.77 11.0275 -0.2575 0.06630625 7 14.92 11.0275 3.8925 15.15155625 8 14.6 11.0275 3.5725 12.76275625 Sum of D 74.42035 Standard Deviation                            3.26 (Sum of D /8-1)^(1/2) c. Average Real rate = Average return - Average inflation = 9.3325 -11.0275 -1.695

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