Question

You purchased shares of stock one year ago at a price of $63.47 per share. During the year, you received dividend payments of $1.97 and sold the stock for $70.59 per share. If the inflation rate during the year was 2.47 percent, what was your real return?

Multiple Choice

• 10.35%

• 11.57%

• 17.15%

• 14.36%

• 8.54%

Answer 1

(1+Real return)	(1+Nominal return)/(1+Inflation rate)
Nominal return from assets	(Sale price - Purchase price + Dividend)/Purchase price
Nominal return from assets	(70.59-63.47+1.97)/63.47
Nominal return from assets	9.09/63.47
Nominal return from assets	14.32%
(1+Real return)	(1.1432)/(1.0247)
(1+Real return)	1.11566
Real return	1.11566-1
Real return	11.57%
Thus, real return is 11.57%