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# Standard deviation and average real return computation

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The following table shows the nominal returns on U. S. stocks and the rate of inflation.

a. What was the standard deviation of the market returns?
b. Calculate the average real return.

Year Nominal Return (%) Inflation (%)
2004 12.5 3.3
2005 6.4 3.4
2006 15.8 2.5
2007 5.6 4.1
2008 -37.2 0.1

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#### Solution Preview

Answers:

Formula for Real Returns= [(1+Nominal Return) /(1+ Inflation)]-1

Formula for Standard Deviation of Real Returns using Excel='=STDEV(Cell ...

#### Solution Summary

This solution provides for the standard deviation and average real return computation of US stocks. A spreadsheet presentation is given for easy calculations.

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