Question

What was the average annual return on large-company stock from 1926 through 2016 in nominal terms? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Answer 1

The question appears to be incomplete and might include this information:

Consider the following information on large-company stocks for a period of years.

Series

Arithmetic Mean

Large-company stocks 14.1 %

Small-company stocks 16.4  

Long-term corporate bonds 6.2  

Long-term government bonds 6.1  

Intermediate-term government bonds 5.6  

U.S. Treasury bills 3.8  

Inflation 4.0  

1) What was the arithmetic average annual return on large-company stocks in nominal terms? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places (e.g., 32.16).)

2) What was the arithmetic average annual return on large-company stocks in real terms? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places (e.g., 32.16).)

Answer:

Part 1:

The arithmetic average annual return on large company stocks in nominal terms is 14.1%.

Part 2:

In order to calculate average annual return of large company stocks is real terms we will use the following formula

(1+N)=(1+R)(1+i)

R= real rate of return

N=nominal rate of return

i= inflation rate

putting values in the formula:

(1+0.141)=(1+R)(1+0.04)

1.141/1.04=(1+R)

1.097115=(1+R)

R=1.097115  -   1

R=0.0971 or 9.71%.