Reference no: EM131680100

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.