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Consider the following information on large-company stocks for a period of years. Arithmetic Mean Large-company stocks 12.1 % Inflation 3.4 a. What was the arithmetic average annual return on large-company stocks in nominal terms

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Answer: 12.1%

Explanation:

Returns are generally quoted in Nominal terms because they include the inflation of the period. The 12.1% is therefore the nominal yield on the stock.

When adjusted for inflation however, the stock return will most likely reduce to reflect the real rate of return which shows the rate of return without the effects of inflation that 'exaggerates' return.