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Finance Question - Please Show Work?
Last year, you purchased a stock at a price of $50 a share. Over the course of the year, you received $2.2 in dividends and inflation averaged 2.8 percent. Today, you sold your shares for $53.6 a share. What is your approximate real rate of return on this investment?
2 Answers
- smahadevan39Lv 79 years agoFavorite Answer
You have gained 3.6 ( 53.6 - 50) which works out to 7.2% if we deduct inflation the net increase is
7.2 - 2.8 = 4.4%. Dividend is an extra income so taken into account on this trading profit.
- SumDudeLv 79 years ago
my first guess (because you said "ror ON THIS INVESTMENT") is
2.20 + 3.60 dividend = 5.80 x (1.00 - .028 inflation aka .972) = 5.6376; /50 invested = 11.2752%
but I do not like that answer because the $50 also lost purchasing power, so ...
55.80 x .972 = 54.2376 in YE purchasing power ( x 2, - 2 shares at 50 each) = 8.4752% real
would be the answer I would go with.
Source(s): a very rusty accounting degree, and too much real world experience to relate to neat and tidy (and unrealistic) textbook problems.