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The following table shows the nominal returns on US. stocks and the rate of inflation, ㄧ Year Nominal Return (%) Inflation (%) 12.0 7.8 172 7.7 -43.5 2.4 3.2 4.0 4.3 .2 2010 2011 2014 a. What was the standard deviation of the nominal market returns? (Do not make the adjustment for degrees of freedom described in footnote 18) (Use decimals, not percents, in your caleulations. Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places Standard deviation b. Calculate the arithmetic average real return. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) Average real return
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Answer #1

Solution:

Real return = Nominal return - inflation

We can use excel functions to calculate the standard deviation and average return

Part A )

Standard deviation = 22.14%

Part B ) Average real return = -2.58%

3 Year Nominal return Inflation Real Return 42010 5 2011 6 2012 7 2013 8 2014 9 STD 10 11 Average 2.40%) 3.20%) 4.00%) 4.30%) 0.20%) 9.60%)-84-C4 4.60%)-85-C5 13.20%)-86-C6 3.40%)-87-C7 -43.70%)-88-C8 12.00%) 7.80%) 17.20%) 7.70%) -43.50%) 22.14% :STDEV.P(84:88 2.58%)-AVERAGE(D4:D8 13 15 16

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