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 Long-term corporate bonds Long-term government bonds Inflation 6.5% 6.4 3.7 What is the real return on long-term government bonds? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Real return What is the real return on long-term corporate bonds? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Real return

Explanation / Answer

Answer 1.

Inflation rate, F = 3.70%
Long-term Corporate bonds, rC = 6.5%
Long-term Corporate bonds, rG = 6.4%

Real Return on Corporate Bonds = (rC - F) / (1 + F)
Real Return on Corporate Bonds = (0.065 - 0.037) / (1 + 0.037)
Real Return on Corporate Bonds = 0.028 / 1.037
Real Return on Corporate Bonds = 2.70%

Real Return on Government Bonds = (rG - F) / (1 + F)
Real Return on Government Bonds = (0.064 - 0.037) / (1 + 0.037)
Real Return on Government Bonds = 0.027 / 1.037
Real Return on Government Bonds = 2.60%

Answer 2.

Return X:

Average Return = (0.218 + (-0.168) + 0.098 + 0.196 + 0.048) / 5
Average Return = 0.0784 = 7.84%

Variance = [(0.218-0.0784)^2 + (-0.168-0.0784)^2 + (0.098-0.0784)^2 + (0.196-0.0784)^2 + (0.048-0.0784)^2] / 4
Variance = 0.095339 / 4
Variance = 0.023835

Standard Deviation = (0.023835)^(1/2)
Standard Deviation = 0.1544 = 15.44%

Return Y:

Average Return = (0.264 + (-0.038) + 0.284 + (-0.146) + 0.324) / 5
Average Return = 0.1376 = 13.76%

Variance = [(0.264-0.1376)^2 + (-0.038-0.1376)^2 + (0.284-0.1376)^2 + (-0.146-0.1376)^2 + (0.324-0.1376)^2] / 4
Variance = 0.183419 / 4
Variance = 0.045855

Standard Deviation = (0.045855)^(1/2)
Standard Deviation = 0.2141 = 21.41%

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