Homework Help: Math

Posted by Antoinette on Wednesday, March 21, 2007 at 11:27am.

Real Reverse Nominal Returns

You purchase 100 shares of stock for
$40 a share. The stock pays a $2 per share dividend at year-end. What is the rate of return on your investment for these end-of-year stock prices? What is your real (inflation-adjusted) rated of return? Assume an inflation rate of 4 percent.
a. $38
b. $40
c. $42

2 for each 40 is five percent. If inflation is 4 percent, then one percent is the real return. So 40 cents a share is the real return

I agree with BobP. Are you sure the multiple choices are in dollars and not cents? Could be a misprint.

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