Question

Suppose we have the following Treasury bill returns and inflation rates over an eight-year period:

Year	Treasury Bills	Inflation
1	9.01%	10.86%
2	9.87	14.41
3	7.62	8.80
4	6.71	6.39
5	7.20	8.56
6	9.50	10.99
7	12.33	15.15
8	14.09	14.89

a.	Calculate the average return for Treasury bills and the average annual inflation rate for this period. (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)
b.	Calculate the standard deviation of Treasury bill returns and inflation over this period. (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)
c.	What was the average real return for Treasury bills over this period? (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.)

Answer 1

Using excel formula to calculate
a.

		A	B
	Year	Treasury Bills	Inflation
1	1	9.01%	10.86%
2	2	9.87%	14.41%
3	3	7.62%	8.80%
4	4	6.71%	6.39%
5	5	7.20%	8.56%
6	6	9.50%	10.99%
7	7	12.33%	15.15%
8	8	14.09%	14.89%
	Average	7.41% or 0.0741	11.26% or 0.1126
	Excel formula	AVERAGE(A1:A8)	AVERAGE(B1:B8)
	Standard Deviation	0.30% or 0.0030	3.28% or 0.0328
	Excel formula	STDEV(A1:A8)	STDEV(B1:B8)

c. Average Real Return =(1+Average Return)/(1+Inflation)-1 =(1+7.41%)/(1+11.26%)-1 =-3.46% or -0.0346 or -0.035