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- which one is correct please confirm? QUESTION 21 If the return on U.S. Treasury bills is 7.02%, the risk premium is 2.32%, and the inflation rate is 4.16%, then the real rate of return is ____. a. 7.02% b. 6.48% c. 4.70% d. 2.86%6. The Fisher effect and the cost of unexpected inflation Suppose the nominal interest rate on savings accounts is 11% per year, and both actual and expected inflation are equal to 6%. Complete the first row of the table by filling in the expected real interest rate and the actual real interest rate before any change in the money supply. Time Period Nominal Interest Rate Expected Inflation Actual Inflation Expected Real Interest Rate Actual Real Interest Rate (Percent) (Percent) (Percent) (Percent) (Percent) Before increase in MS 11 6 6 Immediately after increase in MS 11 6 10 Now suppose the Fed unexpectedly increases the growth rate of the money supply, causing the inflation rate to rise unexpectedly from 6% to 10% per year. Complete the second row of the table by filling in the expected and actual real interest rates on savings accounts immediately after the increase in the money supply (MS). The unanticipated change in…Consider the following information: State of Economy Recession Boom Probability of State Rate of Return if of Economy State Occurs Expected return .20 .80 Calculate the expected return. Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. -.13 .19 %
- es www Year 1 2 3 4 5 Returns X59200 15 % -22 10 10 Y 22% 30 -27 "* 10 21 Using the returns shown above, calculate the arithmetic average returns, the variances, and the standard deviations for X and Y. (Do not round intermediate calculations. Enter your average return and standard deviation answers as a percent rounded to 2 decimal places, e.g., 32.16. Enter your variance answers rounded to 5 decimal places, e.g., .16161.) Average returns Variances Standard deviations X 15 % % % Y % &Inflation is expected to average 2.4% per year for the next 44 years. What percentage of the purchasing power of the dollar will be lost?Mf4. . Assume that you bought a Treasury bill at price=92.450 and sold two days later at 92.550. What is your holding period return? What is your annualized return?
- 1. The price of an item in 2004 was $1.3. Use an inflation rate of 4% to calculate its price in 2030.Problem 2: A $50 bill in 1957 worth only $6.58 in 2007. What was the compounded average annual inflation rate (loss of purchasing power) during this period of time? You may need the following formula to solve the problem: (F/P, i%, N) = (1 + i)N A/Consider the following information: State of Economy Recession Boom Probability of State of Economy .20 .80 Expected return Rate of Return if State Occura Calculate the expected return. Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. % -.13 .19
- Q2 Following are four economic states, their likelihoods, and the potential returns: Economic State Probability Return Fast growth 0.30 60 % Slow growth 0.50 13 Recession 0.15 –15 Depression 0.05 -45 Compute the expected return and standard deviation. (Round your answers to 2 decimal places.) EXPECTED RETURN % STANDARD DEVIATION. %Consider the following table for an eight-year period: Year 1 2345678 T-bill return Inflation 7.40% 8.60% 8.59 12.23 5.98 6.83 5.62 4.97 5.56 6.59 8.19 8.91 10.67 13.18 12.65 12.41 a. 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.) b. 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.) c. 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 "O" wherever required. Do not round Intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) d. What is the average real return for Treasury bills? (A negative…Consider the following information: State of Economy Recession Normal Boom Probability of State Rate of Return if State Occurs of Economy Expected return .10 .60 .30 Calculate the expected return. Note: Do not round intermediate calculations and enter your answer as a percentrounded to 2 decimalplaces,e.g., 32.16. -.17 .08 .27 %