Asked by Kendall Messerole on May 18, 2024
Verified
The price of a stock is $55 at the beginning of the year and $50 at the end of the year. If the stock paid a $3 dividend and inflation was 3%, what is the real holding-period return for the year?
A) -3.64%
B) -6.36%
C) -6.44%
D) -11.74%
Real Holding-period Return
The total return on an investment, accounting for inflation, over the period it is held, reflecting the true increase in purchasing power.
- Gain insight into the influence of inflation on the actual earnings from investments.
Verified Answer
EL
EASY LEARN SINGH CLASSESMay 20, 2024
Final Answer :
C
Explanation :
Nominal return on stock: (50 + 3)/55 - 1 = -3.64%
Real return: (1 + R) = (1 + r)(1 + i)
1 + r = (1 - .0364)/(1.03) = .935
R = .935 - 1 = -.0644
Real return: (1 + R) = (1 + r)(1 + i)
1 + r = (1 - .0364)/(1.03) = .935
R = .935 - 1 = -.0644
Learning Objectives
- Gain insight into the influence of inflation on the actual earnings from investments.