The document provides a table of Treasury bill returns and inflation rates from 1976 to 1983. It asks to calculate the average real return on Treasury bills over this period. The solution shows the calculation of real return for each year by subtracting the inflation rate from the T-bill return. It then calculates the average real return over the 8 years by summing the annual real returns and dividing by 8, determining the average real return was 1.4162%.

1. Refer to the following table:
Year T-bill return Inflation
1976 5.07% 4.86%
1977 5.45 6.7
1978 7.64 9.02
1979 10.56 13.29
1980 12.1 12.52
1981 14.6 8.92
1982 10.94 3.83
1983 8.99 3.79
Calculate the average real return for Treasury bills over this period.
Solution
real return = actual return - inflation rate Year T-bill return Inflation real retrurn
1976 5.07% 4.86% 0.21% 1977 5.45 6.7 -1.25% 1978 7.64 9.02 -1.38% 1979 10.56 13.29 -
3.73% 1980 12.1 12.52 -0.51% 1981 14.6 8.92 5.68% 1982 10.94 3.83 7.11% 1983 8.99 3.79
5.2% average of real return = ( 0.21-1.25-1.38-3.73-.51+5.68+7.11+5.2)/8 =1.4162%