Problem 105 Nominal versus Real Returns LO 2 Series Arithmet

Problem 10-5 Nominal versus Real Returns [LO 2]

  Series

Arithmetic Mean

What was the arithmetic average annual return in nominal terms? (Do not include the percent sign (%). Round your answer to 2 decimal places (e.g., 32.16).)

What was the arithmetic average annual return in real terms? (Do not include the percent sign (%). Round your answer to 2 decimal places (e.g., 32.16).)

Solution

(12.3+16.4+6.2+6.1+5.6+3.8+3.6)/7=7.71%

to get rid of inflation we just subtract when doing an arithmetic mean
so 7.71-3.6=4.11%

Hope that helps!