You purchase 100 shares of stock for $40 a share. The stock pays a $4 per share

Question

You purchase 100 shares of stock for $40 a share. The stock pays a $4 per share dividend at year-end. What is the rate of return on your investment for the end-of-year stock prices listed below? What is your real (inflation-adjusted) rate of return? Assume an inflation rate of 9%. (Leave no cells blank - be certain to enter "0" wherever required. Negative values should be indicated by a minus sign. Do not round intermediate calculations. Round your "Real Rate of Return" answers to 2 decimal places.)

You purchase 100 shares of stock for $40 a share. The stock pays a $4 per share dividend at year-end. What is the rate of return on your investment for the end-of-year stock prices listed below? What is your real (inflation-adjusted) rate of return? Assume an inflation rate of 9%. (Leave no cells blank - be certain to enter "0" wherever required. Negative values should be indicated by a minus sign. Do not round intermediate calculations. Round your "Real Rate of Return" answers to 2 decimal places.)

Explanation / Answer

Hi,

Please find the answer as follows:

Part A:

a) Rate of Return = (4+ 36 - 40)/40*100 = 0%

b) Rate of Return = (4 + 40 - 40)/40*100 = 10%

c) Rate of Return = (4 + 42 - 40)/40*100 = 15%

Part B:

a) Real Rate of Return = (1+0)/(1+.09) - 1 = -8.26%

b) Real Rate of Return = (1+.10)/(1+.09) - 1 = .92%

c) Real Rate of Return = (1+.15)/(1+.09) - 1 = 5.50%

Thanks.

Related Questions

Navigate

• Browse (All)
• Browse Y
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.