Question

last year, you purchased a stock at a price of $62.00 a share. over the course of the year, you received $1.90 per share in dividends and inflation averaged 2.4 percent. today, you sold your shares for $65.30 a share. what is your approximate real rate of return on this investment?

Answer 1

The approximate real rate of return on this investment is $5.08.

Step-by-step explanation:

To calculate the approximate real rate of return on this investment, we need to consider the effect of inflation on the purchasing power of the initial investment. The real rate of return adjusts for inflation and gives us a more accurate measure of the investment's performance.

To calculate the real rate of return, we first need to calculate the nominal rate of return by subtracting the initial price of the stock from the final price, and then adding the dividends received. In this case, the nominal rate of return is ($65.30 - $62.00) + $1.90 = $5.20.

Next, we need to adjust for inflation. Since inflation averaged 2.4 percent, we can multiply the nominal rate of return by (1 - 0.024) to get the real rate of return. In this case, the real rate of return is $5.20 * (1 - 0.024) = $5.08.

Therefore, the approximate real rate of return on this investment is $5.08.