### Question Description

I’m stuck on a Writing question and need an explanation.

Find the real return on the following investments:

STOCK | NOMINAL RETURN | INFLATION |

A | 10% | 3% |

B | 15% | 8% |

C | – 5% | 2% |

## Final Answer

**formula for Real return = (1+nominal return)/(1+inflation rate)-1**

**for stock A, Real return = (1.1/1.03)-1** = **6.80%**

**for stock B, Real return = (1.15/1.08)-1** = **6.48%**

**for stock C , Real return = (0.95/1.02)-1 =** **-6.86%**

**8) let varioto return be x ,**

**then from t-stat = mean of stabelito asset-mean of varieto asset)/sqrt(sigma1^2+sigma2^2)**

**t-stat = (1/2*(8%+5%) - x)/(sqrt( 0.03^2+0.02^2) should be <-2.14 or >2.14 for 95% of times**

**so range of x = (6.5% - sqrt( 0.03^2+0.02^2)*2.14 ,6.5% +sqrt( 0.03^2+0.02^2)*2.14)**

**=(-0.0121 ,0.1421)**

**=(-1.21% ,14.21%)**

**so range is ((-1.21% ,14.21%)**

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