a$)$ Assume that the nominal return on U$.$S$.$ government T$-$bills was $10\%$

during $2002,$ when the rate of inflation was $6\%.$ Calculate the real

risk$-$free rate of return on these T$-$bills. Show your working.

a$)$ Which statement is FALSE regarding the trading of

securities and bonds in the U$.$S$.$ and other markets?

I. Prior to $1970,$ the securities traded in the U$.$S$.$ stock and bond

markets comprised about $65\%$ of all the securities available in world

capital markets

II$.$ By $1998,$ U$.$S$.$ bonds and equities accounted for $42\mathrm{.}3\%$ of the total

securities market versus $47\mathrm{.}3\%$ for nondollar bonds and stocks

III. If you consider only the stock and bond market, the U$.$S$.$

proportion of this combined market is $47\%$ in $1998.$

Explain your correct answer.

b$)$ Consider the following information:

The possible rate of

return for a portfolio for

an investment is shown

below.

What is the expected rate of return for the investment?

$(25$ marks$)$