Question

Which one of the following types of securities has tended to produce the lowest real rate of return for the period 1969 through 2010?

A. Real Estate

B. Long-term government bonds

C. Long-term corporate bonds

D. Stocks

E. U.S. Treasury bills

Answer 1

Real rate of return simply means percentage of profit earned during a year but which should be then adjusted for inflation as to give real rate of profit. It indicates which security gives maximum real return over a year.

Here real estate has been booming since the great depression got over. Also, government bonds provide fixed annual and yearly returns and has been popularised as safe investment and is also generally seen a growth spurt. Return is around 5-6%.

Stocks are as usual volatile and has shown maximum volatality and growth in short term but in long term, when you observe and invest then it has always risen. Gains are around 6-7% in lower bracket.

In all of this, it is the U.S Treasury bills which has shown lowest real rate of return. Because it has shown maximum negative returns over the years and the information is available on various authentic sites. The rates are very low around 1.56% to 2.05%. It revolves in this bracket or slightly higher but lower than all above.

Hence, U.S treasury bill tended to produce lowest real rate of return!