The countries of Stabilato and Variato have the following average returns and st

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Find the real return on the following investments:

                        
  

STOCK

  
  

NOMINAL RETURN

  
  

INFLATION

  
  

A

  
  

10%

  
  

3%

  
  

B

  
  

15%

  
  

8%

  
  

C

  
  

– 5%

  
  

2%

  

Aug 18th, 2014

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%)

please choose me best 

Aug 18th, 2014

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