Suppose we have the following Treasury bill returns and inflation rates over an
ID: 2766555 • Letter: S
Question
Suppose we have the following Treasury bill returns and inflation rates over an eight year period: Year Treasury Bills Inflation 1 9.87% 11.87% 2 10.76 15.36 3 8.48 9.69 4 7.78 7.43 5 8.30 9.69 6 10.63 12.15 7 13.49 16.34 8 15.31 16.22 a. Calculate the average return for Treasury bills and the average annual inflation rate for this period. (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) Treasury bills % Inflation % b. Calculate the standard deviation of Treasury bill returns and inflation over this period. (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) Treasury bills % Inflation % c. What was the average real return for Treasury bills over this period?
Explanation / Answer
Answer 1
Year
Treasury bill return
Inflation rates
1
9.87
11.87
2
10.76
15.36
3
8.48
9.69
4
7.78
7.43
5
8.30
9.69
6
10.63
12.15
7
13.49
16.34
8
15.31
16.22
Total (1)
84.62
98.75
No of years (2)
8.00
8.00
Average (1)/(2)
10.58
12.34
Answer 2
Year
Treasury bill return (1)
Inflation rates (2)
(3)=(1)-10.58
(4)=(2)-12.34
(3)^2
(4)^2
1
9.87
11.87
-0.71
-0.47
0.500556
0.224439
2
10.76
15.36
0.18
3.02
0.033306
9.097764
3
8.48
9.69
-2.10
-2.65
4.399506
7.042389
4
7.78
7.43
-2.80
-4.91
7.826006
24.14494
5
8.30
9.69
-2.28
-2.65
5.187006
7.042389
6
10.63
12.15
0.05
-0.19
0.002756
0.037539
7
13.49
16.34
2.91
4.00
8.482656
15.97001
8
15.31
16.22
4.73
3.88
22.39656
15.02531
Total
84.62
98.75
48.82835
78.58479
Standard deviation
Treasury bill return
root(48.83)
6.987729
Inflation rates
root(78.58)
8.864806
Answer 3
Average real rate return for treasury bill = average return on treasury bill - average inflation rate on treasury bill
= 10.58-12.34
= -1.77
Year
Treasury bill return
Inflation rates
1
9.87
11.87
2
10.76
15.36
3
8.48
9.69
4
7.78
7.43
5
8.30
9.69
6
10.63
12.15
7
13.49
16.34
8
15.31
16.22
Total (1)
84.62
98.75
No of years (2)
8.00
8.00
Average (1)/(2)
10.58
12.34
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