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The price of a stock is $53 at the beginning of the year and $50 at...

The price of a stock is $53 at the beginning of the year and $50 at the end of the year. If the stock paid a $4 dividend and inflation was 4%, what is the real holding period return for the year? (Remember, real is the inflation adjusted percentage return) Round to the nearest hundreth of percent.

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Answer #1

Nominal Holding Period Return = Capital Gain + Dividend / beginning value

= (50 - 53 + 4) / 53

= 1 / 53

= 1.87%

inflation Rate = 4%

Real Rate of Return = ((1+ Nominal rate of return) / (1 + inflation Rate of Return)) - 1

= (1.0187 / 1.04) -1

= - 0.020480 OR - 2.05%

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