You purchase 100 shares of stock for $40 a share. The stock pays a $2 per share dividend at year-end. a. What is the rate of return on your investment if the end-of-year stock price is (i) $38; (ii) $40; (iii) $42? (Leave no cells blank - be certain to enter "O" wherever required. Enter your answers as a whole percent.) Stock Price Rate of Return 38 40 % 42 b. What is your real (inflation-adjusted) rate of return if the inflation rate is 4%? (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places. Negative amounts should be indicated by a minus sign.) Stock Price Real Rate of Return 38
You purchase 100 shares of stock for $40 a share. The stock pays a $2 per share dividend at year-end. a. What is the rate of return on your investment if the end-of-year stock price is (i) $38; (ii) $40; (iii) $42? (Leave no cells blank - be certain to enter "O" wherever required. Enter your answers as a whole percent.) Stock Price Rate of Return 38 40 % 42 b. What is your real (inflation-adjusted) rate of return if the inflation rate is 4%? (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places. Negative amounts should be indicated by a minus sign.) Stock Price Real Rate of Return 38
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:**Investment Rate of Return Exercise**
You purchase 100 shares of stock for $40 a share. The stock pays a $2 per share dividend at year-end.
**a. Determine the rate of return on your investment if the end-of-year stock price is:**
- (i) $38;
- (ii) $40;
- (iii) $42.
*Leave no cells blank - be certain to enter "0" wherever required. Enter your answers as a whole percent.*
| Stock Price | Rate of Return (%) |
|-------------|--------------------|
| 38 | |
| 40 | |
| 42 | |
**b. What is your real (inflation-adjusted) rate of return if the inflation rate is 4%?** *(Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places. Negative amounts should be indicated by a minus sign.)*
| Stock Price | Real Rate of Return (%) |
|-------------|-------------------------|
| 38 | |
Transcribed Image Text:### Real Rate of Return Calculation
To determine your real (inflation-adjusted) rate of return when the inflation rate is 4%, follow these instructions. Ensure all calculations are accurate by not rounding intermediate steps. Present your final answers as percentages, rounded to two decimal places. If the amount is negative, display it with a minus sign.
#### Table of Stock Prices and Real Rate of Return
| Stock Price | Real Rate of Return |
|-------------|---------------------|
| 38 | % |
| 40 | % |
| 42 | % |
This exercise requires calculating the real rate of return for different stock prices after accounting for a 4% inflation rate.
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