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Calculating the various statistical measures

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Here are the inflation rates and U.S. stock market and Treasury bill returns between 1929 and 1933: 1929 Inflation=-2, Stock Market Return=-14.5, T-Bill Return=4.8. 1930: Inflation=-6.0, Stock Market Return=-28.3, T-Bill Return=2.4. 1931: -9.5, -43.9 and 1.1. 1932: -10.3, -9.9 and 1.0. 1933: .5, 57.3 and .3.

A. What was the real retun on the stock market in each year.
B. What was the average real return?
C. what was the risk premium in each year?
D. What was the average risk premium?
E. What was the standard deviation of the risk premium?

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Solution Summary

Solution describes the steps to calculate the real return, average real return, risk premium, average risk premium and standard deviation of risk premium in the given case.

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Please refer attached file for better clarity of tables and missing formulas.

A.  What was the real return on the stock market in each year.

Market return, r Inflation, i Real Return
(1+r)/(1+i)-1
1929 -14.50% -2% -12.76%
1930 -28.30% -6% -23.72%
1931 -43.90% -9.50% -38.01%
1932 -9.90% -10.30% 0.45%
1933 57.30% 0.50% 56.52%

B.  What was the average real return?

Market return, r Inflation, i Real Return
(1+r)/(1+i)-1
1929 -14.50% ...

Solution provided by:
Lokesh Jain, MSc
Education
  • BEng (Hons) , Birla Institute of Technology and Science, India
  • MSc (Hons) , Birla Institute of Technology and Science, India
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