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5-2 You purchase 100 shares of stock for $40 a share. The st

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5-2 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 the end-of-year stock prices listed below? What is your real (inflation-adjusted) rate of return? Assume an inflation rate of 3%. (Leave no cells blank - be certain to enter "0" wherever required. Negative values should be indicated by a minus sign. Do not round intermediate calculations. Round your "Real Rate of Return" answers to 2 decimal places.)

Rate of Return Real Rate of Return
a. $38 __________% _____________ %
b. $40 __________% ______________%
c. $44 __________% ______________%

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Solution Summary

5-2 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 the end-of-year stock prices listed below? What is your real (inflation-adjusted) rate of return? Assume an inflation rate of 3%. (Leave no cells blank - be certain to enter "0" wherever required. Negative values should be indicated by a minus sign. Do not round intermediate calculations. Round your "Real Rate of Return" answers to 2 decimal places.)

Rate of Return Real Rate of Return
a. $38 __________% _____________ %
b. $40 __________% ______________%
c. $44 __________% ______________%

Solution Preview

(a)

Rate of return = ((38-40) + 2) ÷ 40 = 0

Real rate of return = ((1 + nominal rate of return)÷(1 + inflation ...

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