A stock earned a real average arithmetic rate of return of 5.65 percent for a 4-year period.During that period inflation averaged 3.6 percent while U.S.Treasury bills returned 4.2 percent.Assume the stock had annual nominal returns of 8 percent,13 percent and 12 percent for three of the four years.What nominal rate of return did the stock earn in the fourth year?
A)3.25%
B)3.65%
C)3.26%
D)4.00%
E)4.25%

Question

Quizplus · Accepted Answer

Nominal average return on the stock = .0565 + .036 = .0925Nominal average return on the stock = .0925 = (.08 + .13 + .12 + R)/4R = .04,or 4.00%

A Stock Earned a Real Average Arithmetic Rate of Return