Consider the following information for a period of years. Series Arithmetic Mean

Question

Consider the following information for a period of years. Series Arithmetic Mean Large-company stocks 11.7 % Small-company stocks 16.4 Long-term corporate bonds 7.7 Long-term government bonds 7.6 Intermediate-term government bonds 5.6 U.S. Treasury bills 3.8 Inflation 4.6 Requirement 1: What is the historical real return on long-term government bonds? (Do not include the percent sign (%). Round your answer to 2 decimal places (e.g., 32.16).) Real return % Requirement 2: What is the historical real return on long-term corporate bonds? (Do not include the percent sign (%). Round your answer to 2 decimal places (e.g., 32.16).) Real return %

Explanation / Answer

Requirement 1 7.6% = (1+real rate of return) * (1+Inflation Rate) 7.6% = (1+real rate of return) * (1+4.6%) Real rate of Return = 2.87% Requirement 2 7.7% = (1+real rate of return) * (1+Inflation Rate) 7.7% = (1+real rate of return) * (1+4.6%) Real rate of Return = 2.96%

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