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Stocks and the rate of inflation

Problem: The following table shows the nominal returns on U. S. stocks and the rate of inflation.

a. What was the standard deviation of the market returns?

b. Calculate the average real return.

Year Nominal Return (%) Inflation (%)

2004 12.5 3.3

2005 6.4 3.4

2006 15.8 2.5

2007 5.6 4.1

2008 -37.2 0.1

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