PLEASE EXPLAIN IN STEPS What was the real return on the stock market in each yea
ID: 2710505 • Letter: P
Question
PLEASE EXPLAIN IN STEPS
What was the real return on the stock market in each year? (Negative values should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to 1 decimal place.)
What was the average real return? (Negative value should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to 2 decimal places.)
What was the risk premium in each year? (Negative values should be indicated by a minus sign. Round your answers to 1 decimal place.)
What was the average risk premium? (Negative value should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to 2 decimal places.)
What was the standard deviation of the risk premium? (Do not make the adjustment for degrees of freedom described in footnote16.) (Do not round intermediate calculations. Round your answer to 2 decimal places.)
Here are Costaguanan inflation rates and stock market and Treasury bill returns between 1929 and 1933:
Explanation / Answer
1
Calculation of real return on the stock market in each year
Formula:
Real rate = ((1+Nominal rate) /(1+ Inflation rate))-1
Year
Inflation
Stock Market Return
Real rate return
A
B
C = ((1+B)/(1+A))-1
1929
-0.20%
-11.10%
-10.92%
1930
-6.20%
-22.20%
-17.06%
1931
-10.00%
-42.30%
-35.89%
1932
-11.80%
-11.20%
0.68%
1933
0.50%
62.20%
61.39%
2
Calculation of Average real return:
Year
Real return
1929
-10.92%
1930
-17.06%
1931
-35.89%
1932
0.68%
1933
61.39%
Total
-1.79%
Average = Total /5
-0.36%
3
Calculation of Risk premium:
Year
Stock Market Return
T-Bill Return
Risk Premium
A
B
A-B
1929
-11.10%
6.50%
-17.60%
1930
-22.20%
4.00%
-26.20%
1931
-42.30%
1.80%
-44.10%
1932
-11.20%
0.80%
-12.00%
1933
62.20%
0.60%
61.60%
4
Calculation of Average risk premium:
Year
Risk Premium
1929
-17.60%
1930
-26.20%
1931
-44.10%
1932
-12.00%
1933
61.60%
Total
-38.30%
Average Risk = Total /5
-7.66%
1
Calculation of real return on the stock market in each year
Formula:
Real rate = ((1+Nominal rate) /(1+ Inflation rate))-1
Year
Inflation
Stock Market Return
Real rate return
A
B
C = ((1+B)/(1+A))-1
1929
-0.20%
-11.10%
-10.92%
1930
-6.20%
-22.20%
-17.06%
1931
-10.00%
-42.30%
-35.89%
1932
-11.80%
-11.20%
0.68%
1933
0.50%
62.20%
61.39%
2
Calculation of Average real return:
Year
Real return
1929
-10.92%
1930
-17.06%
1931
-35.89%
1932
0.68%
1933
61.39%
Total
-1.79%
Average = Total /5
-0.36%
3
Calculation of Risk premium:
Year
Stock Market Return
T-Bill Return
Risk Premium
A
B
A-B
1929
-11.10%
6.50%
-17.60%
1930
-22.20%
4.00%
-26.20%
1931
-42.30%
1.80%
-44.10%
1932
-11.20%
0.80%
-12.00%
1933
62.20%
0.60%
61.60%
4
Calculation of Average risk premium:
Year
Risk Premium
1929
-17.60%
1930
-26.20%
1931
-44.10%
1932
-12.00%
1933
61.60%
Total
-38.30%
Average Risk = Total /5
-7.66%
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