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28 May, 11:24

What was the average annual return on large-company stock from 1926 through 2016 in nominal terms? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e. g., 32.16.)

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  1. 28 May, 11:46
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    The question appears to be incomplete and might include this information:

    Consider the following information on large-company stocks for a period of years.

    Series

    Arithmetic Mean

    Large-company stocks 14.1 %

    Small-company stocks 16.4

    Long-term corporate bonds 6.2

    Long-term government bonds 6.1

    Intermediate-term government bonds 5.6

    U. S. Treasury bills 3.8

    Inflation 4.0

    1) What was the arithmetic average annual return on large-company stocks in nominal terms? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places (e. g., 32.16).)

    2) What was the arithmetic average annual return on large-company stocks in real terms? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places (e. g., 32.16).)

    Answer:

    Part 1:

    The arithmetic average annual return on large company stocks in nominal terms is 14.1%.

    Part 2:

    In order to calculate average annual return of large company stocks is real terms we will use the following formula

    (1+N) = (1+R) (1+i)

    R = real rate of return

    N=nominal rate of return

    i = inflation rate

    putting values in the formula:

    (1+0.141) = (1+R) (1+0.04)

    1.141/1.04 = (1+R)

    1.097115 = (1+R)

    R=1.097115 - 1

    R=0.0971 or 9.71%.
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