Consider the following historical returns for Big Diesel Incorporated and inflation for the United States economy: What is the average real return for Big Diesel over the five-year time period?

Question

Consider the following historical returns for Big Diesel Incorporated and inflation for the United States economy:  What is the average real return for Big Diesel over the five-year time period?

Quizplus · Accepted Answer

avg.nominal return = (.05+.09-.08+.05+.20)/5 = .31/5 = .062
avg.inflation = (.02 + .02 + .022 + .022 +.022 )= .106/5 = .0212
1 + avg.real return = ( 1 + nom )/ (1 + infl)= (1.062)/(1.0212)= 1.04
Avg.real return = 4.00%

Consider the Following Historical Returns for Big Diesel Incorporated and Inflation