Question

Consider the following table for an eight-year period:

Year	T-bill return		Inflation
1	7.44	%	8.56	%
2	8.79		12.19
3	6.02		6.79
4	5.82		5.01
5	5.60		6.55
6	8.39		8.87
7	10.71		13.14
8	12.85		12.37

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.)

Year	Real 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

Year Treasury bills returns Deviation from mean Square of deviation Inflation rate Deviation from mean Square of deviation 7.44% 8.79% 6.02% 5.82% 5.60% 8.39% 10.71% 12.85% 8.56% 12.19% 6.79% 5.01% 6.55% 8.87% 13.14% 12.37% 1 0.0076 0.0059 0.0218 -0.0238 0.0260 0.0019 0.0251 0.0465 0.0001 0.0000 0.0005 0.0006 0.0007 0.0000 0.0006 0.0022 0.0063 0.0301 0.0240 0.0418 0.0264 0.0032 0.0396 0.0319 0.0000 0.0009 0.0006 0.0017 0.0007 0.0000 0.0016 0.0010 2 4 4 10 11 Sum 12 13 Average return (Mean) 14 15 16 Variance 17 18 Standard deviation 19 (Square root of variance 65.62% 0.0046 73.48% 0.0065 8.20% 9.19% 65.62%/8 73.48%/8) 0.0007 (0.0046/(8-1 0.0009 (0.0065/(8-1)) 2.57% 3.06% 21 Average real return -0.98% 8.20%-9.19%