Question

At the beginning of the year, you bought 100 shares of Microsoft common stock for $105, and over the course of the year, the company paid a dividend of $3 per share. At the end of the year, you sell your 100 shares for $80. The inflation rate for the year was 4 percent. What is the nominal return of your investment?

Answer 1

Answer:

100 shares are purchased for $105 per share.

Purchase cost = 100 * $105 = $10,500

Dividend received = $3 per share

Total dividend received = 100 * $3 = $300

Sale price = $80 per share

Total sales receipt = 100 * $80 = $8000

Total earnings from shares = $8000 + $300 = $8,300

Loss from shares = Total earning from shares - Purchase cost = $10,500 - $8,300 = $2,200

Calculate nominal return on investment -

Nominal return = (Loss/Purchase cost) * 100

Nominal return = ($2,200/$10,500) * 100 = -20.95%

The nominal return on investment was -20.95%