You purchase 100 shares of stock for $25 a share. The stock pays a $1 per share

Question

You purchase 100 shares of stock for $25 a share. The stock pays a $1 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 2%

Find the Rate of Return AND Real Rate of Return for: $24, $25 and $28

You purchase 100 shares of stock for $25 a share. The stock pays a $1 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 2%

Find the Rate of Return AND Real Rate of Return for: $24, $25 and $28

Explanation / Answer

R=rate of return R= final value, including dividends and interest-initial value/initial value Real rate of return=Rate of return- Inflation Rate Year end Stock Price(final Value) Dividend during the period Initial Price Rate of Return Real rate of return a 24 1 25 0 -2% b 25 1 25 4% 2% c 28 1 25 16% 14%

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