Question

In: Finance

You purchased shares in Home Depot at the beginning of the year for $55 a share....

You purchased shares in Home Depot at the beginning of the year for $55 a share. Home Depot paid a $3 dividend throughout the year, and its share price ended the year at $50. If inflation that year was 3%, what was the real holding-period return for the year?

Multiple Choice

-6.44%

-6.36%

-11.74%

-3.64%

Solutions

Expert Solution

Total return=(End value-Beginning value+Dividend)/Beginning value  

=(50-55+3)/55

=-3.636%(Approx)

Real return=[(1+nominal rate)/(1+inflation rate)]-1

=[(1-0.03636)/(1+0.03)]-1

=(0.963636364/1.03)-1

which is equal to

=-6.44%(Approx)(Negative)

jeff jeffy answered 2 years ago
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