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

Question

Consider the following information on large-company stocks for a period of years Series Arithmetic Mean Large-company stocks Inflation 12.3% 3.6 a. What was the arithmetic average annual return on large-company stocks in nominal terms? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Nominal return b. What was the arithmetic average annual return on large-company stocks in real terms? (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

a)

Nominal return:

= 12.30%

b)

Real return (1+Nominal rate)÷(1+Inflation rate)-1 Here, Nominal rate 12.30% Inflation rate 3.60% Real return 8.40% (1+12.30%)÷(1+3.60%)-1

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