Question A) William Hunting Ltd has been operating in Sydney since 1984. Over the last 5 years, the company has achieved the following percentage rates of return.
Year Annual Returns (% pa)
2011 15
2012 6
2013 - 6
2014 13
2015 12
REQUIRED:
i) Calculate the average annual return for the past 5 years.
ii) Calculate the standard deviation of these returns.
Question B) In 2016, in an overseas country, the real rate of interest on a bond was 4% and the rate of inflation was 6%. What nominal rate would you expect to see on the government bond? Use the geometric or Fisher method.
i) Is a negative real rate of interest likely to be expected? Give reasons.
ii) Is it possible for a negative real rate to occur if the nominal rate is positive? Explain, with the aid of a hypothetical example.