Answer:
Real rate of return= 13.7%
Explanation:
The return on investment is the sum of the dividends earned and capital gains made during the holding period of the investment.
Dividend is the proportion of the profit made by a company which is paid to shareholders.
Capital gains is another type of the return made on an equity investment as a result of increase in the value of the shares. It is difference between the cost of the share and the value at the time of disposal.
Therefore, we can can compute the return on the investment as follows:
The total return = (2.90) + (65.60-60)= 8.5
To determine the real return, we adjust the nominal return for the impact of inflation as follows:
Real total return ($) = 8.5/1.034=8.220
Total return in (%) = (8.220 /60)× 100= 13.7%
Answer:
1.1%
Explanation:
To calculate the approximate real rate of return on the investment, we first need to calculate the nominal rate of return. As shown below:
Nominal Return = (Price of Share Sold - Price of the Share + Dividend received on share) / Price of the Share x 100
Nominal return = ($65.60 - $60.00 + $2.90) / $60.00
= 0.045 x 100
= 4.5%
Then we deduct the inflation rate from the nominal return to get the approximate real rate. This calculate below:
Approximate real rate = Nominal Return - Inflation rate
Approximate real rate = 4.5% - 3.4%
= 1.1%
Hence, the approximate real rate on this investment is 1.1%.
