Question

What was the real rate of return over the past year (from one year ago to today) for a stock if the inflation rate over the past year was 5.58 percent, the risk-free return over the past year was 6.97 percent, the stock is currently priced at 82.86 dollars, the stock was priced at 73.56 dollars 1 year ago, and the stock just paid a dividend of 2.72 dollars? Answer as a rate in decimal format so that 12.34% would be entered as .1234 and 0.98% would be entered as .0098.

Answer 1

nominal rate of return on the stock

=(dividend+capital gain)/purchase price

=(2.72+(82.86-73.56))/73.56

=16.34%

the real rate of return=((1+16.34%)/(1+5.58%))-1=10.19% or 0.1019