The approximate real rate of return on this investment is -4.96%. The '-' (minus) sign indicates that there is a negative return from this investment.
The annual rate of return that is taken into consideration after taxes and inflation is referred to as the "real rate of return." On the other hand, the term "nominal rate" refers to a rate of return that does not take into account either taxes or inflation.
The term "real rate" refers to a rate of return on an investment that takes into account various factors such as taxes and inflation. The actual rate of return is the amount of money that will be returned to the investor after they have made an investment.
Nominal rate of return = (Selling price - Purchase price + Dividend)/ Purchase price
It is given that selling price is $59.74
Purchase price = $63.80
Dividend = $2.68
Thus,
Nominal rate of return = ($59.74 − 63.80 + 2.68)/$63.80
Nominal return = −.0216
Nominal return = −2.16%
Real rate of return = Nominal rate of return - Inflation
It is given that inflation = 2.8% i.e. 0.28
Thus,
Real rate of return = -0.216 - 0.28
Real rate of return = -0.496
Real rate of return = -4.96%
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