2. An investor purchased a stock for $200 and sold it for $300 6 years later....

Question

Question

business finance

Answer 1

Answer #1

Rate of return ignoring inflation

Total return = (sale price - purchase price + total dividends) / purchase price

Total return = (300 - 200 + (7.50 * 6)) / 200

Total return = 72.50%.

Rate of return after inflation

Rate of return after inflation = total return / (1 + inflation rate)^{number of years}

Rate of return after inflation = 72.50% / (1 + 2.7%)⁶

Rate of return after inflation = 61.79%

Answer 2

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