Refer to Table 12.1 in the text and look at the period from 1973 through 1980.

a. Calculate the average return for Treasury bills and the average annual inflation rate (consumer price index) for this period.

b. Calculate the standard deviation of Treasury bill returns and inflation over this period.

c. Calculate the real return for each year. What is the average real return for Treasury bills?

d. Many people consider Treasury bills risk-free. What do these calculations tell you about the potential risks of Treasury bills?

Table 12.1

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TABLE 12.1 Year-to-Year Total Returns: 1926-2019 Year Large-Company Stocks Long-Term Government Bonds U.S. Treasury Bills Consumer Price Index 1926 11.62% 7.77% 3.27% -1.49% 1927 37.49 8.93 3.12 -2.08 1928 43.61 .10 3.56 -.97 1929 -8.42 3.42 4.75 .20 1930 -24.90 4.66 2.41 -6.03 1931 -43.34 -5.31 1.07 -9.52 1932 -8.19 16.84 .96 -10.30 1933 53.99 -07 .30 .51 1934 -1.44 10.03 .16 2.03 1935 47.67 4.98 .17 2.99 1936 33.92 7.52 .18 1.21 1937 -35.03 .23 .31 3.10 1938 31.12 5.53 -.02 -2.78 1939 -41 5.94 .02 -48 1940 -9.78 6.09 .00 .96 1941 -11.59 .93 .06 9.72 1942 20.34 3.22 .27 9.29 1943 25.90 2.08 .35 3.16 1944 19.75 2.81 .33 2.11 1945 36.44 10.73 .33 2.25 1946 -8.07 -.10 .35 18.16 1947 5.71 -2.62 .50 9.01 1948 5.50 3.40 .81 2.71 1949 18.79 6.45 1.10 -1.80 1950 31.71 .06 1.20 5.79 1951 24.02 -3.93 1.49 5.87 1952 18.37 1.16 1.66 .88 1953 -.99 3.64 1.82 .62 1954 52.62 7.19 .86 -.50 1955 31.56 -1.29 1.57 .37 1956 6.56 -5.59 2.46 2.86 1957 - 10.78 7.46 3.14 3.02 1958 43.36 -6.09 1.54 1.76 1959 11.96 -2.26 2.95 1.50 1960 47 13.78 2.66 1.48 1961 26.89 .97 2.13 .67 1962 -8.73 6.89 2.73 1.22 1963 22.80 1.21 3.12 1.65 1964 16.48 3.51 3.54 1.19 1965 12.45 .71 3.93 1.92 1966 -10.06 3.65 4.76 3.35 1967 23.98 -9.18 4.21 3.04 1968 11.06 -.26 5.21 4.72 1969 -8.50 -5.07 6.58 6.11 1970 3.86 12.11 6.52 5.49 1971 14.30 13.23 4.39 3.36 1972 19.00 5.69 3.84 3.41 1973 -14.69 -1.11 6.93 8.80