Question

At the beginning of the year, you bought 100 shares of IBM common stock for $100, and over the course of the year, the company paid a dividend of $6 per share. At the end of the year, you sell your 100 shares for $110. The inflation rate for the year was 5 percent The nominal retum on your investment was percent

Answer 1

The nominal return on your investment was -3.81%.

Initial Investment = 100 shares * $105/share = $10,500

Selling Price = 100 shares * $95/share = $9,500

Capital Gain = Selling Price - Initial Investment

= $9,500 - $10,500

= -$1,000

Dividend per share = $6

Total Dividend Income = 100 shares * $6/share = $600

Total Income = Capital Gain + Dividend Income = -$1,000 + $600 = -$400

Nominal Return = (Total Income / Initial Investment) * 100

= (-$400 / $10,500) * 100

= -3.81%

Answer 2

The nominal return on your investment was -3.81%.

Initial Investment = 100 shares * $105/share = $10,500

Selling Price = 100 shares * $95/share = $9,500

Capital Gain = Selling Price - Initial Investment

= $9,500 - $10,500

= -$1,000

Dividend per share = $6

Total Dividend Income = 100 shares * $6/share = $600

Total Income = Capital Gain + Dividend Income = -$1,000 + $600 = -$400

Nominal Return = (Total Income / Initial Investment) * 100

= (-$400 / $10,500) * 100

= -3.81%

So, the nominal return on your investment was -3.81%.