You've observed the following returns on Barnett Corporation's stock over the past five years: - 27.3 percent, 15.2 percent, 33.4 percent, 3.1 percent, and 22.1 percent. The average inflation rate over this period was 3.31 percent and the average T-bill rate over the period was 4.3 percent. What was the average real risk-free rate over this time period?

Question

Zoie Harrington

Business

16 May, 15:59

You've observed the following returns on Barnett Corporation's stock over the past five years: - 27.3 percent, 15.2 percent, 33.4 percent, 3.1 percent, and 22.1 percent. The average inflation rate over this period was 3.31 percent and the average T-bill rate over the period was 4.3 percent. What was the average real risk-free rate over this time period?

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Answers (1)

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Damon Hickman · Answer 1

The average real risk-free rate over this time period was 0.96%

Explanation:

According to the given data we have the following:

average inflation rate=3.31%

average T-bill rate=4.3%

Hence, in order to calculate the average real risk-free rate over this time period we can use the fisher equation as follows:

(1 + R) = (1 + r) (1 + h)

= (1.043/1.0331) - 1

= 0.0096=0.96%

Therefore, the average real risk-free rate over this time period was 0.96%.