Question

Last year, you purchased a stock at a price of $74.00 a share. Over the course of the year, you received $2.10 per share in dividends and inflation averaged 2.6 percent. Today, you sold your shares for $77.70 a share. What is your approximate real rate of return on this investment

Answer 1

5.2%

Step-by-step explanation:

Calculation to determine What is your approximate real rate of return on this investment

First step is to calculate the Nominal return

Nominal return = ($77.70 - $74.00 + $2.10) / $74.00

Nominal return=$5.80/$74.00

Nominal return= 0.078*100

Nominal return= 7.8%

Now let calculate the Approximate real rate using this formula

Approximate real rate=Nominal return-Inflation averaged

Let plug in the formula

Approximate real rate = 7.8% - 2.6%

Approximate real rate= 5.2%

Therefore your approximate real rate of return on this investment will be 5.2%