Final answer:
The correct option to compute the real rate of return on an investment is D) All of the above. It includes the gain or loss on the asset, the income from the asset, and the rate of inflation to determine the actual value and purchasing power of the returns.
Step-by-step explanation:
To compute the real rate of return on an investment, it is necessary to account for various factors that affect the value of the investment over time. The correct option is D) All of the above, because: The gain (or loss) recognized on the asset is important as it contributes to the actual rate of return, which includes capital gains and any dividends or interest the investment has produced. The income received from holding the asset, such as dividends or interest payments, is a part of the total return an investor gets from their investment. The rate of inflation significantly impacts the real rate of return, because if the rate of return on an investment is not higher than the rate of inflation, the investor is effectively losing purchasing power. Therefore, to accurately calculate the real rate of return, an investor must consider all of these elements, as they help determine the worth of future payments and include the opportunity cost of investing and any applicable risk premium.
To compute the real rate of return on an investment, it is necessary to know all of the following: The gain (or loss) recognized on the asset. This refers to the difference between the amount invested and the amount received when the asset is sold. The income received from holding the asset. This includes any dividends, interest, or rental income generated by the investment. The rate of inflation. This is important because it affects the purchasing power of the investment's returns. By considering all of these factors, the investor can determine the actual rate of return, which takes into account both the gain or loss on the asset and the income received from it.