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4. Series Arithmetic Mean What was the arithmetic average annual return on large

ID: 2760643 • Letter: 4

Question

4.

  Series

Arithmetic Mean

What was the arithmetic average annual return on large-company stocks in nominal terms? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places (e.g., 32.16).)

What was the arithmetic average annual return on large-company stocks in real terms? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places (e.g., 32.16).)

Consider the following information on large-company stocks for a period of years.

Explanation / Answer

(a)

The nominal return is the stated return which is 13.9%

(b)

Using the Fishers Equation The real return is =

(1+R)= (1+r) (1+h)

r = (1.1390) / (1.033) - 1

r = 0.1026 or 10.26%

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