For Exercises 10.1 and 10.2, see page 488; for 10.3 and 10.4, see page 490; for 10.5, see pages 493–494; for 10.6 to 10.8, see pages 498–499; for 10.9 and 10.10, see page 500; and for 10.11 and 10.12, see page 502.

Question 10.11

10.11 T-bills and inflation.

We expect the interest rates on Treasury bills to rise when the rate of inflation rises and fall when inflation falls. That is, we expect a positive correlation between the return on T-bills and the inflation rate.

  1. Find the sample correlation for the 55 years in Table 10.1 in the Excel output in Figure 10.10. Use Table G to get an approximate -value. What do you conclude?
  2. From , calculate the statistic for testing correlation. What are its degrees of freedom? Use Table D to give an approximate -value. Compare your result with the -value from (a).
  3. Verify that your for correlation calculated in part (b) has the same value as the for slope in the Excel output.

10.11

(a) . There is a significant positive correlation between T-bills and inflation rate. (b) . The results are the same.