Question

Problem 10-22 Calculating Returns [LO 2, 3]

Consider the following table for an eight-year period:

YearT-bill returnInflation

17.32%8.68%

28.19 12.31

35.90 6.91

45.22 4.89

55.48 6.67

67.79 8.99

710.59 13.26

812.25 12.49

Calculate the average return for Treasury bills and the average annual inflation rate (consumer price index) for this period. (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)

  

Average return for Treasury bills %

Average annual inflation rate %

Calculate the standard deviation of Treasury bill returns and inflation over this time period. (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)

  

Standard deviation of Treasury bills %

Standard deviation of inflation %

Calculate the real return for each year. (A negative answer should be indicated by a minus sign. Leave no cells blank - be certain to enter "0" wherever required. Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)

YearReal return

1%

2 %

3 %

4 %

5 %

6 %

7 %

8 %

What is the average real return for Treasury bills? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Average real return for Treasury bills             %

Answer 1

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projects (Autosaved) (Autosaved) (Autosaved) - Microsoft Excel (Product Activation Failed) Formulas File Home Insert Page Layout Data Review View Add-Ins E AutoSum - Cut AC Wrap Text Calibri 11 General Copy Fill Merge & Center Conditional Format Formatting as Table Styles Paste $ % , 000 Cell Insert Delete Format Sort & Find & Filter Select BIU Format Painter Clear Clipboard Font Alignment Number Styles Cells Editing fox IS20 IJ IK IL IM IN IP IR IS IT JU IV RR (1+TR%)/(1+IR%) - 1 Real return (RR) 1 TR IR |(TR-E(TR))^2 (IR-E(IR))^2 requirement 3 : (a) T bill return Inflation 2 7.32 8.68 0.354025 -1.25% 3 0.273006 4. -3.67% 8.19 12.31 0.120756 9.211225 6.91 -0.94% 5 5.9 3.773306 5.593225 4.89 6.877506 0.31% 6 5.22 19.228225 5.581406 6.786025 -1.12% 7 5.48 6.67 0.081225 -1.10% 7.79 8.99 0.002756 -2.36% 9 10.59 13.26 7.548756 15.880225 12.49 19.426056 -0.21% 10 12.25 10.336225 11 43.603550 Total return = Total return -10.34% 12 62.74 74.2 67.470400 9.28 2(TR-E(TR))^2 (IR-E(IR))^2 [74.2/8] E(IR) -1.29% Average real return 13 requirement 1 Average return = 7.84 requirement 3 : (b) [62.74/8] E(TR) [-10.34/8] 14 15 16 17 requirement 2 Standard deviation (TR-E(TR))A2/ (n-1) = (IR-E(IR))^2/(n-1) = 43.603550/7 for T bill 18 6.23 for Inflation 67.470400/7 19 9.64 20 21 EAC MACRS STI NPV RELEVANT BETA LEVERED IRRnpvbeta invest, EAA BOND RATION PBP ARR MI-np-ir REPLACEMENT S HPR GMAM REPLACEMENT OPTION TO WAIT E Rea 120% erences W 07:01 ENG 05-11-2019