PRIN.OF CORPORATE FINANCE
13th Edition
ISBN: 9781260013900
Author: BREALEY
Publisher: RENT MCG
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Chapter 7, Problem 2PS
Real versus nominal returns The Costaguana stock market provided a
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The following table shows the nominal returns on Brazilian stocks and the rate of inflation.
Year
Nominal Return (%)
2015
2016
0.2
-13.0
2017
-11.0
2018
-42.1
2019
2020
66.9
27.6
Inflation (%)
6.5
6.6
7.1
11.4
7.0
3.6
a. What was the standard deviation of the market returns?
Note: Use decimals, not percents, in your calculations. Do not round intermediate calculations. Enter your answer as a
percent rounded to 2 decimal places.
b. Calculate the average real return.
Note: A negative answer should be indicated by a minus sign. Do not round intermediate calculations. Enter your answer as
a percent rounded to 2 decimal places.
a. Standard deviation
b. Average real return
%
%
The Costaguana stock market provided a rate of return of 93%. The inflation rate in Costaguana during the year was 80%. In Ruritania
the stock market return was 13%, but the inflation rate was only 4%.
a. Calculate the real rate of return for Costaguana stock market?
Note: Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.
b. Calculate the real rate of return for Ruritania stock market?
Note: Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.
c. Which country's stock market provided the higher real rate of return?
a. Real rate of return for Costaguana stock market
b. Real rate of return for Ruritania stock market
c. Higher real rate of return
%
%
The Narnian stock market had a rate of return of 45% last year, but the inflation rate was 30%. What was the real rate of return to Narnian investors?
Chapter 7 Solutions
PRIN.OF CORPORATE FINANCE
Ch. 7 - Rate of return The level of the Syldavia market...Ch. 7 - Real versus nominal returns The Costaguana stock...Ch. 7 - Arithmetic average and compound returns Integrated...Ch. 7 - Risk premiums Here are inflation rates and U.S....Ch. 7 - Risk Premium Suppose that in year 2030, investors...Ch. 7 - Stocks vs. bonds Each of the following statements...Ch. 7 - Expected return and standard deviation A game of...Ch. 7 - Standard deviation of returns The following table...Ch. 7 - Average returns and standard deviation During the...Ch. 7 - Prob. 10PS
Ch. 7 - Prob. 11PSCh. 7 - Diversification Here are the percentage returns on...Ch. 7 - Risk and diversification In which of the following...Ch. 7 - Prob. 14PSCh. 7 - Portfolio risk To calculate the variance of a...Ch. 7 - Portfolio risk a) How many variance terms and how...Ch. 7 - Portfolio risk Table 7.8 shows standard deviations...Ch. 7 - Portfolio risk Hyacinth Macaw invests 60% of her...Ch. 7 - Stock betas What is the beta of each of the stocks...Ch. 7 - Stock betas There are few, if any, real companies...Ch. 7 - Portfolio betas A portfolio contains equal...Ch. 7 - Portfolio betas Suppose the standard deviation of...Ch. 7 - Portfolio risk Here are some historical data on...Ch. 7 - Portfolio risk Suppose that Treasury bills offer a...
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- A stock had a return of 6.8 percent last year. If the inflation rate was 1.2 percent, what was the approximate real return? (Enter your answer as a percent rounded to 1 decimal place.)arrow_forwardOver the past 4 years, large-company stocks and U.S. Treasury bills have produced the returns stated below. During this period, inflation averaged 1.5 percent. Given this information, the average real rate of return on large-company stocks was ___ percent as compared to _____ percent for Treasury bills. Year 1 Year 2 Year 3 Year 4 Return (Large Cap Stocks) 12% 9% 6% 3% Return (U.S. Tsy-bills) 4% 2% 1% 1% Group of answer choices 5.9; -0.5 6.5; -0.5 5.9; 0.5 6.5; 0.5 6.5; 0.0arrow_forwardAn investor earned 12% last year, a year when actual inflation was 9% and was expected to have been 6%. What was the investor's realized rate of return?arrow_forward
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