Search treasury.gov or other webpages or use Bloomberg Lab to find forecasts of the U.S. inflation rate for next year. Also find the current interest rate paid by one-year Treasury bills (this will be the nominal rate of interest for that type of security). Use the data and Equation 4.2 in the book to estimate the current real rate of interest paid by the Treasury bill.
Briefly describe standard deviation as a measure of risk or variability.
The historical returns for two investments—A and B—are summarized in the following table for the period 2016 to 2020. Use the data to answer the questions that follow.
Year A B
Rate of Return Rate of Return
2016 19% 8%
2017 1% 10%
2018 10% 12%
2019 26% 14%
2020 4% 16%
Average 12% 12%
(1)On the basis of a review of the return data, which investment appears to be more risky? Provide your rationale.
(2)Calculate the standard deviation for each investment’s returns. Take the Table 4.9 in the textbook as an example to calculate the variance and standard deviation for investment A and B individually. Attach your worked solutions in the Excel spreadsheets to your discussion. (To refresh the basic Excel skills, please watch the video in Resource Center)