Investor Liu will invest one hundred million dollars into three instruments for one year. Firstly, Liu bought debt A. The original quantity of debt is 1 million and unit price is 10 dollars. After 1 year, the unit price of debt A is 12 dollars. Secondly, Liu bought the stock B with unit price 40 dollars and the quantity is 1 million. After 1 year, the unit price of stock B has been increased to 50 dollars. Thirdly, Liu bought the stock C with unit price 25 dollars and the quantity is 2 million. After 1 year, the unit price of stock C has been decreased to 20 dollars. After 1 year, If Liu sold up the debt A, stock B and stock C, find the total group rate of return for investment? If the inflation rate is 4%, What is the final real rate of return?
Here,
Total Amount to be invested = 100 million dollars
Investment in debt A = 1 million*10 = 10 million ($10 unit price of Debt A)
Investment in Stock B = 1 million*40 = 40 million ($40 unit price of Stock B)
Investment in Stock C = 2 million *25 = 50 million ($25 unit price of stock C)
Value of Debt A after 1 year = 1 million *12 = 12 million
Value of Stock B after 1 year = 1 million *50 = 50 million
Value of Stock C after 1 year = 2 million *20 = 40 million
So total Value after 1 year = 12+50+40 = 102 million
So Group Return = (102-100)/100*100 = 2%
Now Inflation = 4%
So Real Return = 2-4 = -2%
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